Seven Things That Might Stop You From Getting A Mortgage

There are many reasons why you may not be able to get a mortgage or borrow the amount you want.

Here, we cover seven reasons why you can’t get a mortgage or borrow the amount you wish to.

Low or small deposit

When looking to buy a property, you usually have to contribute some money from the outset. This is called the "deposit" or, occasionally, including in the USA, it’s called a down payment. In general, the more money you save for a deposit, the lower the interest rate you will get.

According to Zoopla, the average cost of a new home in January 2024 was £263,300. Someone putting in a 5% deposit must find £13,165. Depending on the purchase price, you may also have to pay stamp duty and legal costs.

One way to get a larger deposit is to have a friend or family member give it to you. This is called a "gifted deposit." Sometimes, a lender needs the person giving money to confirm it's a gift, not a loan. The person receiving the money doesn't have to pay it back. Having a deposit is the first stepping stone to receiving mortgage approval.

Failing the affordability check

Every lender will carry out an affordability check. It’s essential that mortgage lenders feel that you can comfortably afford the proposed mortgage repayments. If you cannot maintain repayments, you could potentially lose your home.

You can help by providing accurate monthly/annual outgoings to make the affordability assessment realistic.

Failing an affordability check means you can’t afford the proposed mortgage. If your income rises significantly or you can put down a larger deposit, you might pass the affordability check sometime in the future, allowing you to purchase the property you want.

Being self-employed without proof of income

If you work for yourself, you must show proof of how much money you make. You can do this by providing SA302s, tax year overviews, or a letter from your accountant verifying your income.

Lenders may not give you a mortgage if your accounts are overdue. This is because they need to know your income and verify whether you can afford the monthly payments.

It’s essential to keep your tax affairs current when applying for any mortgage or loan, especially if you are self-employed.

Issues with the property you wish to purchase

From the lender's point of view, it is essential that the property they are taking as security is in good condition and considered mortgagable. If a property is repossessed, lenders must sell fast to get their money back since the borrower isn't paying back their loan. This is important for the lender to recover their losses. 

If the property has issues with its structure, it may take longer to sell and not fetch the desired price, so the lender needs to be satisfied it is in good condition.

Apart from the lender being satisfied that the property is suitable security, you both need to know that the property has no defects. If you have any concerns about the property, getting a builder or building surveyor to look at it for you would be advisable. It may not be apparent to you, but the property may suffer from subsidence, meaning that you might not be able to sell it easily.

Administrative errors in an application

When completing an application, you must provide all the information accurately.

Any mortgage lender will decide whether to lend based on the information on your application form. Look closely at the questions. For example, if you are asked to confirm your monthly net income, ensure you don’t insert your gross monthly income, as this will impact the amount you can borrow.

If you realise later that you have made a mistake, notify your mortgage broker or the lender of the error as soon as possible.

Having a bad credit 

While having bad credit might not prevent you from getting a mortgage, it is likely to increase the interest rate that you have to pay. Ultimately, the type of loan and interest rate you get will depend on your circumstances. 

Having said that, if you have had credit issues such as missed credit card and loan repayments for, say, 12 months, it’s doubtful that you will be able to obtain a mortgage with bad credit, particularly if you only have a small deposit to put towards the property purchase.

If you have a bad credit history, bad credit loans may be available, but the interest rate is likely to be high, and you may not be able to take out as much as you need.

It's a good idea to get a copy of your credit file to check your credit, particularly if you are unsure what adverse credit you might have registered against your name. The UK has three main credit reference agencies: Equifax, Experian, and TransUnion. Obtaining your credit report to check your credit score will not harm your credit score.

Some mortgage lenders are happy to consider lending to applicants with adverse credit or a low credit score. A professional mortgage broker should have access to several lenders that specialise in mortgages for those with poor credit or who require a self-employed mortgage.

Whether you're a first-time buyer or someone looking for a long-term mortgage, they should be able to source you the best mortgage deal, considering your financial situation.

If you are financially struggling, applying for a personal loan or mortgage might not be a good idea. If you want to get onto the property ladder and are buying a home, the mortgage rates offered will be high, meaning the mortgage payments might be unaffordable. In this instance, it’s worth waiting and working on improving your financial situation for the longer-term benefits.

Not on the electoral roll

If you’re not shown on the voter roll, you must prove that you live at the address you are saying you do. It’s usually enough to provide a bank statement or utility bill dated within the last three months as evidence. This applies whether you take out a first mortgage to buy a house or apply for a second mortgage where you might raise funds for home improvements.

These seven factors are the main reasons that might stop you from being approved for a mortgage. If you have any queries, contact your bank, a reputable mortgage lender or experts like our team at The Second Mortgage Company.