If your mortgage application is refused, it can be not only frustrating but inconvenient, as it can affect or even halt many plans you may have already made.
The Mortgage Advice Bureau now says that the average age of a first-time buyer is now 37, which would make a standard 25-year mortgage take them to 62. However, this figure is likely to creep up, as high house prices up and down the country take first-time buyer ages beyond 40.
The mortgage affordability rules introduced in April 2014 take into account not only how much you are earning, but how much you are spending, and whether you actually have the money to make your monthly mortgage repayment. It could even lead to longer-term mortgages, potentially taking people past 65.
The consequence for many people though is that credit refusal can often lead to more attempts to get credit – and making multiple applications in a short space of time could have a serious impact on your chances of getting credit in the future.
There are a number of reasons you might be turned down – and finding out what they are could get you back on track.
Low credit score – Whenever you apply for credit, the company you apply to will normally give you a credit score based on information in your credit report, your application form and any details they have if you’re already a customer. This could include whether you are up to date with payments, whether you’ve applied for, or received, credit with another lender quite recently, your income, and what products you have with them already (if any).
It may be worth checking your credit report for anything that might have reduced your credit score and caused you to be turned down – things like maxed out cards, CCJ’s, late payments, or lots of applications for credit are just some of the reasons.
The Experian Credit Score is a guide to help you understand your credit report, and how the way you’ve managed the credit you’ve had in the past might affect applications you’re making now.
Application factors - Besides the information on your credit report, there could be additional factors involved based on the information you provided in your application. These could include your income not being high enough for the lender’s threshold, the amount of time you’ve spent in your current job, or supplying incorrect or inaccurate information mistakenly on your application form. So it’s best not to rush it – take your time to fill it out carefully, and don’t guess at answers such as how long you’ve lived in a property, etc.
Lender’s decision – If you’ve been refused, only the lender can tell you why because only they know how they use your credit score. Lenders are keen to know whether you’ll you be able to afford your monthly repayments should interest rates go up, or if your circumstances change.
If you ask them directly, they should be able to tell you the main reason, and whether the information on your credit report played a part. Then you can take any opportunities to improve things before you decide to apply again for a mortgage. It’s also worth checking any guidance the lender provides before you apply, so you can maximise your chances of being accepted.
What you can do about it
To help give yourself the best chance of getting approved next time around, one thing to do is to review your credit report before you next make a mortgage application.
It pays to understand your credit report before you apply, as this can give you a good idea of whether you’ll be accepted or not. By keeping your credit report in the best order possible, you may be able to improve your credit score.
If you’ve been turned down for a mortgage recently here are some of your next steps:
- If you can, stay within credit limits and keep balances low – The lower your overall balances (not including mortgage), the better. Simple well-managed forms of credit can show lenders that you can pay bills responsibly and on time each month.
- Try not to make too many applications for credit – each application (mortgage, card, loan and more) is recorded on your credit report, and if you make a handful in a short space of time, it can look to lenders like you’re desperate for credit- the fewer you’ve made in the last 6 months, the better.
- Make sure all bills are paid on time – Missed or late payments can have a big impact, but paying on time can really help your score. Doing this can help you build up a good payment history which can stand you in good stead when it comes to next time.
- Register to vote at your current address – Check that you’re registered on the electoral roll at your current address. Not being registered may have a negative impact – many lenders use it to help them double-check that you live where you say you live.
- Review your credit report regularly – Try to make sure everything’s accurate and up to date, and in good shape for when you’re ready to apply again – for example that old accounts aren’t showing as still being open at previous addresses, and that you’re not financially linked to an ex.
Following some of these steps could put you in a great position to apply for a mortgage and be confident of getting the deal you’re looking for.