Why you might get declined for a mortgage | Real Mortgage Advice | This will surprise you

Topic: Why Your Mortgage May Be Declined (and What to Do About It)

Introduction

Hello and welcome back to our channel and podcast! My name’s Gemma, and here at WIS we talk about all things relating to money, mortgages, and positive money mindsets.

On today’s podcast of Let’s Talk Money and Mortgages, we have Iftikhar (“Ifty”), a trained accountant and mortgage broker with over 10 years of industry experience and one of the founding directors here at WIS.

Q&A Discussion

Q1: Where can people go wrong with affordability, and why might this cause a mortgage decline?

Affordability is key, and it has three components: income, expenses, and commitments.

Income:

• Many clients state their income incorrectly (e.g., £25,000 including salary + bonus).
• Banks treat bonuses, commissions, and flexible pay differently.
• If these aren’t reported correctly, affordability calculations can be wrong.

Expenses:

• Banks assume average expenses (council tax, utilities, phone bills).
• Extraordinary expenses (e.g., gambling, costly hobbies, nightclub spending) can reduce affordability.
• Brokers check bank statements to ensure expenses are accurately reflected.

Commitments:

• Loans, credit cards, childcare, or private school fees must be disclosed.
• Even small forgotten commitments (e.g., £40/month sofa loan) can harm affordability.

Tip: Always speak to a broker to avoid being declined for affordability reasons.

Q2: How does a credit profile affect mortgage approval?

Your credit profile is critical. Lenders look at:

• Red flags: bankruptcy, county court judgments (CCJs), IVAs, payday loans, or second charge mortgages.
• Missed payments:
• Recent missed payments are more damaging than old ones.
• Mortgage payment arrears are taken very seriously.
• Utility bill arrears are treated more leniently (often due to moving house).
• Basic details:
• Incorrect names can create duplicate profiles.
• Not being on the voters’ register lowers credit scores.
• Credit scoring:
• Most mainstream banks credit-score applications.
• Some lenders use manual underwriting and may overlook credit scores but will still review commitments.

Tip: Always check your credit file before applying.

Q3: How important is documentation, especially for the self-employed?

Documentation is crucial, particularly for the self-employed.

Income mismatches:

• Clients often misreport income compared to SA302 tax forms.
• For example, dividends taken may differ from what’s declared after adjustments.
• Banks go by SA302s, so mismatches can lead to decline.

Deposits:

• Borrowing from friends or family is treated as a loan (a commitment).
• Gifts from family must have a clear audit trail showing the source of funds.

Tip: Always work with a broker to ensure documentation matches lender requirements.

Q4: What happens when a lender declines a mortgage without giving a reason?

This is rare but can happen:

• Example: A client had an unresolved small loan from years ago, which created a “black mark.”
• Lenders may also decline if they cannot verify income or if something appears suspicious (e.g., sudden high salary from zero).
• Such declines may be recorded on a register, affecting future applications.

Advice:

• Don’t rush to apply with another bank.
• Instead, wait, build up evidence (e.g., six months’ payslips), and reapply with the same bank.

Q5: Can the property itself cause a mortgage decline?

Yes, the property can be a reason for rejection. Examples include:

• High-rise apartments: Some banks don’t lend on buildings over a certain number of floors.
• Ex-council houses: Certain lenders avoid these.
• Flat roofs, wooden beams, or specific balconies: May be unacceptable to some lenders.
• Grenfell-related regulations: Many flats now require an EWS1 certificate—without it, lenders may decline.
• Unlivable properties: Banks generally won’t lend on them.

Tip: Always check with a broker about property type before applying.

Q6: How does furlough or reduced income due to COVID affect mortgage applications?

Employees on furlough:

• Some banks accept furlough income if the employer confirms ongoing work post-furlough.
• Others may be cautious due to job security risks.

Self-employed on furlough:

• More problematic, as it signals lack of current work and lower income.
• Banks now request up-to-date financials (not just last tax return) to check COVID’s impact.
• Industries like pubs or salons, which were forced to close, face more rejections.

Tip: Speak to a broker before applying if furlough affects your income.

Conclusion

Thank you, Ifty, for sharing such valuable advice.

Key reminders:

• These points may not apply to everyone. Always speak to a broker or advisor for tailored advice.
• If you don’t have a broker, our WIS contact details are below—we’re happy to help.
• Remember: A mortgage is secured against your home and it may be repossessed if you do not keep up with repayments.

Stay safe, and join us next week for another episode of Let’s Talk Money and Mortgages.