THESE are the most common reasons high street banks reject your mortgage application – and why “no” doesn’t mean your homeowner dream is over.
A rejection from a high street bank doesn’t necessarily mean the dream of owning a home is over, according to brokers and mortgage experts, who say many borrowers are turned down simply because they don’t meet one lender’s specific criteria.
They argue that thousands of prospective buyers mistakenly assume a single rejection means they are un-mortgageable, when in reality another lender may be willing to approve their application.
Brokers say the most common reasons for a mortgage rejection include regular gambling, affordability issues, adverse credit, self-employed or complex income, high existing debts and properties that fall outside a lender’s standard lending policy.
Increasing automation in mortgage underwriting has also led to more “computer says no” decisions, with applicants sometimes rejected over relatively minor issues such as an old missed payment.
But experts stress that borrowers shouldn’t panic after a rejection.
While specialist lenders can often help applicants who don’t fit high street criteria, many cases can still be placed with another mainstream lender whose affordability calculations or lending rules are more suitable.
Don’t give up
Emma Jones, Managing Director at Runcorn-based Whenthebanksaysno.co.uk, urged people to not give up if they receive a “no” and to seek advice before assuming homeownership is out of reach.
She said: “Too many people take a mortgage rejection personally when it’s often nothing more than a mismatch with one lender’s criteria. We’ve helped countless clients who were turned down by their bank secure a mortgage elsewhere shortly afterwards.
“The worst thing you can do is keep applying to different lenders yourself. Find out why you were declined, get professional advice, and you’ll often discover there are still plenty of options available.”
Jamie Elvin, Director at London-based Strive Mortgages, said specialist lenders are available for people turned down by high street banks.
He added: “A mortgage rejection isn’t the end of the road – it usually just means you don’t fit that particular lender’s criteria. Affordability, adverse credit, self-employed income, high commitments and non-standard properties are among the most common reasons people are turned down.
“One of the biggest misconceptions is that specialist lenders charge eye-watering rates. While every case is different, rates are often only around 0.5% to 1.5% higher than comparable high street deals, and sometimes even closer. The biggest mistake borrowers make is giving up after one rejection.”
Still a misconception
Tracey Dixon, Buy-to-Let Mortgage Specialist & Owner at Cardiff-based Pure Mortgage and Protection, said people shouldn’t be put off by one “no”.
She added: “Common reasons for a rejection include adverse credit, affordability, complex or self-employed income, high existing commitments, or properties that fall outside mainstream lending policy. There’s still a misconception that specialist lenders charge eye-watering rates, but that’s no longer always the case.
“The biggest mistake people make is assuming one rejection is the end of the road. More often than not, it’s simply a case of finding the lender whose criteria fits the client’s circumstances. A ‘no’ from one lender doesn’t mean everyone will say no.”
Craig Fish, Director at London-based Lodestone Mortgages, said you don’t need to give up on high street lenders too soon.
He added: “Most rejections at high street level come down to adverse credit, tight affordability, or criteria issues like complex income. But one ‘no’ doesn’t mean the whole market has said no, there’s almost always a solution if your broker is willing to dig for it rather than giving up after the first hurdle.
“It’s also a myth that rejection automatically means specialist lender territory and often that’s not true. Plenty of high street lenders will still say yes, it just takes more legwork from your broker to find them. So if yours jumps straight to a specialist lender with a high rate attached, get a second opinion.”
Ross Lacey, Director & Independent Financial Adviser at Rayleigh-based Fairview Financial Management, said the most common reasons for mortgages being refused are “missed payments and defaults”.
He added: “These can be for relatively small amounts a couple of years ago, and still have enough of an impact to get declined by a high street lender.”
Specialist lenders exist
Stephen Perkins, Managing Director at Norwich-based Yellow Brick Mortgages, said lenders have policies they need to adhere to.
He added: “One of the biggest misconceptions is that if a high street bank declines your mortgage, it means nobody else will lend to you. In reality, lenders all have different criteria and a rejection often says more about that lender’s policy than it does about the borrower.
“The most common reasons we see are income that’s assessed differently, such as overtime, bonuses or self-employment, affordability calculations, historic credit issues, or circumstances that simply don’t fit one lender’s lending policy. That’s exactly why specialist lenders exist.”
Simon Bridgland, Broker at Canterbury-based Charwin Private Clients, said you could be forced to pay 2-2.5% higher with specialist lenders.
He added: “Despite what the big six lenders on a high street will say, they won’t want to know if you have adverse credit such as defaults, County Court Judgements (CCJs), Debt Management Plans or Individual Voluntary Arrangement (IVAs). Unfortunately these are the most common reasons for a decline other than affordability.
“Specialist lenders will help struggling borrowers far more often than people realise, but the more severe the adverse the more severe the rate, so someone with recent mortgage arrears and some defaults, may be paying up to double digits. A specialist lender will usually start 2-2.5% higher than the market leading high street rates.”
Richard Davidson, Mortgage Advisor at onlinemortgageadvisor.co.uk, said gambling could lead to a lender turning you down.
He added: “The most common reasons the high street says no are adverse credit like a missed payment, a default or a CCJ, too much existing debt eating into affordability, a complex or self-employed income that does not fit the tick boxes, a thin credit history, or something on the bank statements the lender does not like, such as regular gambling.
“None of this makes clients un-lendable, but with high street banks increasingly automating their decisions it can often mean ‘computer says no’. Plenty of clients get knocked back over something very small, like a CCJ for parking, which throws them out at the high street when they would easily fit with a specialist lender at a rate at mid 5%.”
Mike Staton, Director at Mansfield-based Staton Mortgages, said people who have been refused a loan need to seek professional advice when getting a mortgage.
He said: “My advice to anybody seeking a mortgage at the moment is to do it through a professional.”
