Four in five first-time buyers currently struggle to get a mortgage, the figures show.
Credit ratings, low savings and challenges with furloughs and job hunting have led to fewer people being able to secure a post-Covid purchase, putting more pressure on already struggling shoppers.
That’s according to Aldermore Bank which has found that on average only one in five buyers now get a mortgage on their first attempt, down from almost three last year.
Worse still, two-fifths of first-time buyers say they have been turned down for a mortgage more than once in the past year.
Top reasons for failed applications include a bad credit history, overdrawn debt, low deposit, credit card loans, not being on the voter rolls, and being self-employed .
Gaps in employment, student loans and payday loans also have an impact, but there are simple ways to improve your application without giving up essential payments.
“Being turned down for a mortgage, while it can be a deflating experience, is not over as the options have expanded over the past decade,” said Jon Cooper, head of mortgage distribution at Aldermore.
“The growth of specialist lenders, who through human underwriting can dig into the details of more complicated applications, has opened the door for those who had complicated income streams or credit problems in their past to find a way forward. towards home ownership.
James Andrews, financial expert at Money.co.uk said buyers are caught off guard by unusual financial mistakes that most wouldn’t consider a risk.
“When you apply for a mortgage, one of the things you have to do is hand over a few months of bank statements,” James said.
“The idea is for your provider to check that you can actually pay your mortgage when your expenses are factored in – but they’re not just looking at the total at the bottom, they’re also looking for red flags.
“The problem for some potential borrowers is that unless you’re careful, a perfectly innocent transaction could be misinterpreted by a lender and get you rejected.
“That means it helps to know what they’re looking for to make sure you don’t accidentally lock yourself out of a deal you’d otherwise be entitled to.”
Here are eight unexpected reasons why your mortgage application could be rejected.
1. Inside jokes
Whether you’re receiving money to pay for a shared pizza or for a larger sum of money like a vacation payment or rent, it might seem like fun to include a joke reference when sending money. .
However, lenders may wonder what these references mean – and more importantly, they may not take your word for it if you tell them it was a joke.
“Ask your friends to label all payments with a reference that reflects the real purpose of the transfer, such as ‘pizza’ or ‘summer vacation’,” suggests James.
2. Send someone £100 on their birthday
If you are in the middle of a mortgage application, lending or giving even a small amount of money could raise questions from the lender.
This includes sending a friend or loved one a sudden amount of money or an unexpected purchase like a new refrigerator.
“Seeing less money than normal in your account can impact affordability calculations, and if something doesn’t match, it could delay the application process,” says James.
“The key is to make sure you have a good reserve in your bank account to account for any non-essential expenses during the mortgage application process.”
3. Betting or gambling transactions
If you enjoy a flutter once in a while it shouldn’t hurt, but frequent play amounting to large sums can alert a lender.
In fact, the Aldermore study shows that gambling transactions are the eighth most common credit problem when applying for a mortgage.
“If you bet small amounts here and there (like playing the lottery), it won’t impact your mortgage application.
“But lenders will factor in gambling transactions, assessing whether you’re likely to comfortably pay your mortgage on time each month. So if your gambling is causing a problem with your finances, it can also cause a problem with your mortgage application,” says James.
Gambling can lead to serious personal and financial problems. If you need help, you can contact GamCare for help and advice.
4. Get a new job – even if it pays better
Lenders don’t just consider your income when assessing your application – they also want proof that you won’t miss any payments, and long-term employment is strong proof of that.
“We usually celebrate getting a new, better paying job, but this can cause problems when applying for a mortgage, as most lenders will only offer you one if you have been in your job for a while” , explains James.
Some lenders think it’s riskier to give a mortgage to someone who’s still on probation.
“However, a higher salary can lessen the impact as it increases what lenders think you can afford to borrow. You will need to prove your new salary, so ask your employer to confirm this in writing.
5. Underestimating your salary
Getting your income figured out wrong – for example by not taking into account your annual salary increase – could mean that your application is rejected when the lender matches your salary.
James says you should double-check any wording before submitting your form.
“Check whether you need to enter your annual salary or your monthly salary, as this is a very common mistake,” he explains.
“You might end up telling your lender you’re making £2,000 a year, when you mean a month.
“Also, if you receive regular bonuses or commissions, don’t include them in your base salary, enter them separately so your lender can see the big picture.”
6. Drop-down menus
Some computers automatically save information from previous forms and cards, such as addresses and names.
But the use of stored data can also lead to errors – and the entering of incorrect information where it is not needed.
Accidentally saying you have two kids instead of one, for example, will affect your claim because banks will determine whether you earn enough to take care of your dependents.
7. Not having a paper trail for your deposit
If you received some or all of your deposit as a gift, make sure you have a paper trail showing the money going out and into the accounts so the lender can track its journey to you.
Not having it can lead to delays in your application, and if you can’t prove where the money came from, it may not be able to be included in your application,” says James.
“In the worst cases we’ve seen, people’s accounts have been frozen and flagged as a risk of fraud after transferring all money from family, partners and savings accounts on the same day and then leaving directly to pay the deposit.”
8. Friday Night Madness
While it’s completely normal to want to socialize on the weekends, watch out for random belated or impulsive splurges that might make you feel reckless or unreliable.
For example, suddenly withdrawing £100 from an ATM at 11pm for a taxi or drunken impulsive splurge on champagne could make you seem a bit unreliable – something banks can be incredibly worried about.
From Universal Credit to furlough, job rights, travel updates and emergency financial assistance – we’ve got all the big financial stories you need to know right now.
Subscribe to our Mirror Money newsletter here.
Other Ways to Increase Your Chances of Success
We’ve gone over a few more common reasons why your app might fail – and how to fix them.
- “I have no credit proof in my credit file”
If you don’t have a history, you can actually apply for a low credit credit card to help boost your score. Remember to pay your balance in full each month, otherwise it could make the situation worse.
Some of these cards will charge high interest charges because you are considered “risky” – so use them sparingly.
- ‘I/my partner are not on the electoral lists’
Sign up and register to vote. It’s a double win as you will also have a say in who rules your local electorate and your country.
- “I haven’t always lived in the UK”
It is true that some lenders may be wary of lending to people with only limited permission to stay in the UK.
If you are eligible, it would be worth applying for permanent residence in the UK, or “leave to stay indefinitely” to give him his official title. Alternatively, an expatriate mortgage may be a solution to consider.
- ‘I made too many credit applications’
Most credit applications will only stay on your file for six months – and most lenders will only look very far – so if you’ve done too much in a very short time, take some time to let the dust settle. .