Have you been declined a mortgage due to bad credit?
“Your mortgage has been declined” are words no prospective homeowner wants to hear, but having your mortgage refused because of a poor credit history is relatively common.
It doesn’t need to be the end of your property search though. Understanding why you might have been declined – and how Simply Adverse can help you – could put you back on the road to owning your own home.
You can be refused a mortgage at any stage of the application process for a number of different reasons. Whether you’ve been turned down before you’ve had an agreement in principle or got as far as exchanging contracts, identifying why it has happened will help you and your broker move forward and find you a suitable deal. We’ve taken a look at what might go wrong with your mortgage application, and how Simply Adverse can help put it right.
Mortgage Refused At The Pre-Approval Stage
When you first apply for a mortgage your prospective lender will take some details about you, and anyone else who is applying with you, in order to determine whether they are likely to be willing to lend to you.
This is a relatively short process after which you will receive an agreement in principle (AIP) – also known as a mortgage promise or a decision in principle. As the name suggests, an agreement in principle tells you how much the lender is will lend to you in principle. An agreement in principle assumes that nothing will change between pre-approval and your full mortgage application.
In order to make this decision the lender will carry out a credit search. This won’t affect your credit history , as although it is recorded on your credit file, lenders won’t see this. They will also use other information, such as your income, your financial behaviour with them if you are a current customer etc to support the information from the credit check.
There are many reasons why you might be refused a mortgage at this pre-approval stage as lenders use their own algorithms to determine outcome, factors that will negatively impact your chances include:
- Recent missed loan or credit card repayments
- You haven’t registered on the electoral register
- The lender doesn’t believe that you will be able to afford the mortgage repayments
- You only have a very small deposit available
- You have only been in your current job for a short time
- How you earn your income
- You have made mistakes on your application such as incorrect addresses
- Financial associations or shared credit facilities with friend, partner, spouse, family member that negatively affect your credit profiling
In addition to these common reasons for being declined a mortgage at this stage it may be that you simply don’t fit the lender’s criteria. Many lenders prefer to lend to a specific demographic, and if you don’t match this profile, they will not accept your application.
Mortgage Declined After An Agreement In Principle
While you can enter the pre-approval stage before you have made an offer on a property – and having secured an agreement in principle could help you decide which property to buy – you will only make the full application once you have had an offer on a property accepted.
As the agreement in principle is not a guarantee of getting a mortgage you can be turned down at this stage, which is particularly disappointing, especially as you may already have paid upfront fees.
To understand why you can be refused a mortgage after receiving a decision in principle, it helps to know how the process works at this stage.
Once you make the full mortgage application an underwriter will look more deeply at your financial circumstances, as well as taking into account factors relating to the property you are proposing to buy.
Mortgage declined by the underwriter
The lender’s underwriting team is assessing how much of a risk you pose to the lender. As they are looking at your application in more detail, and with more information, they may decide, that on reflection they are no longer comfortable with accepting your mortgage application.
On reviewing your application, they may discover that for example:-
- You don’t meet their affordability criteria
- Your income isn’t acceptable to them, for example if you included commission in your basic income figure
- You attempted to conceal adverse credit, for example a previous bankruptcy
- You have changed you job since your AIP
- You have taken out new credit, or missed additional payments since your AIP – particularly red flag products such as payday loans
- You have financial associations with credit problems
Mortgage refused after valuation
During the application process your lender will arrange for a surveyor to carry out a valuation of the property you intend to buy. This valuation is for the lender’s benefit and usually amounts to no more than a couple of pages. It’s designed to give them an independent valuation, but it may also flag-up issues such as unusual building materials.
If you are refused a mortgage after valuation, then it could be because the lender’s valuation suggests that the property is worth less than the mortgage you are applying for. This is known as a down valuation and will consequently reduce the amount the lender is prepared to loan.
Alternatively, the surveyor may have raised concerns about the structural integrity of the property or have found construction or material types that are outside the lender’s criteria.
Mortgage declined after exchange of contracts
It is extremely rare for the buying process to get as far as exchange of contracts and then for the mortgage to fall through. If it does happen it tends to be due to a change in your financial circumstances – such as a job change – or because you have taken out a high interest loan. This highlights the need to keep your financial affairs as steady as possible during the mortgage application and house purchasing process.
Mortgage offer expires before completion
Mortgage offers are generally only valid for 6 months. If your sale takes longer than this the offer expires, and you can find yourself without a mortgage. This is more likely to happen with new build properties, where the build has been delayed..
In these circumstances it is possible to ask for an extension of your mortgage offer – although you should give the lender a few weeks’ notice.
You can of course re-apply for the same mortgage, or even search the market for a better deal.
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How Simply Adverse Can Help If Your Mortgage Has Been Declined
As we’ve outlined many of the reasons for having a mortgage declined, particularly early in the application process, are tied to health of your finances.
A poor credit history, bankruptcy and CCJs are reasons why your mortgage may be refused in the pre-approval stage or even after an agreement in principle has been received.
As bad credit mortgage specialists, the CEMAP qualified brokers at Simply Adverse can help you avoid many of the pitfalls that can see your mortgage application turned down initially, or refused at a later stage
Approaching the right lender
Using Simply Adverse maximises your chances of approaching a lender whose criteria matches your personal circumstances. Lenders’ criteria aren’t fixed, and an adverse credit mortgage broker has up-to-date information regarding the current picture.
If your mortgage application hasn’t been accepted because the combination of your poor credit and your other personal circumstances didn’t fit with the lender’s demographic, then using a broker can provide you a with an easy solution to the problem.
Submitting accurate information
Submitting a mortgage application can be complex, so it’s no wonder that some applications aren’t accepted due to incomplete or inaccurate information. The mortgage lenders searches will almost always see any details omitted, whether this means it’s turned down due to an affordability issue, or related to bad credit, the outcome is still a refusal.
As Simply Adverse use professional brokers to handle the application process for you, you can be sure that all the material we submit will be accurate. We work with you to ensure that we have all the information we need to provide lenders with everything they need.
Accurately representing your income
Demonstrating that you can afford your mortgage repayments are key to not being turned down for a mortgage. If you have had adverse credit in the past, and are currently either self-employed or working in a job where your salary is partially comprised of commission, you may find it particularly difficult to find a lender.
If you’ve been declined a mortgage due to your inability to satisfy a lender of your ability to meet repayments, then Simply Adverse’s brokers can help ensure that you accurately represent your income. to ensure that we have all the information we need to provide lenders with everything they need.
Simply Adverse has a whole department dedicated to underwriting cases before the applications are submitted. This means that by-and-large we have already uncovered any issues that the lender’s underwriters may come across.
Identifying problems at this early stage helps you address them, and further ensures that we only approach a lender who will be happy to consider someone with your type of poor credit history. For example, we work with lenders who may lend to mortgage applicants with CCJs and previous bankruptcies.
We always stress the importance of applicants being completely honest and disclosing everything about their financial history. The underwriting exercise we carry out in-house is a valuable to in confirming that the information you have given us is complete and correct.
Having A Mortgage Declined Isn’t The End Of The World
If you’ve had a mortgage refused due to your poor credit history, whether you applied independently or through a broker, talk to Simply Adverse and find out how our adverse credit mortgage brokers can help you find an appropriate mortgage deal that’s right for you.
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