There are many factors that can prevent you from getting a mortgage, including having bad credit and failing the affordability checks, but the reality is that many people simply believe they are ineligible.
In reality, with the right approach, many of the obstacles that can affect mortgage applications can be overcome.
In this guide, we examine some of the things that most people believe will ruin their mortgage plans and outline how to avoid them.
Common Factors That Can Stop You From Getting A Mortgage
When it comes to who they approve for financing, some mortgage lenders, especially those on the high street, can be picky. If someone tries to go it alone and look for the right deal without having any prior market knowledge, the odds are stacked against them, even those without a history of bad credit.
It pays to be aware of the challenges you might face in order to obtain the financing you require because the market is large and each mortgage lender has unique requirements you must meet.
Here are some of the most typical problems that might prevent you from applying for a mortgage in the UK.
Rental Income Being Short
Any mortgage provider's decision to lend depends in large part on the properties rental income. In this regard, the market has significantly changed, and lenders generally have an interest coverage ratio (ICR) of anywhere from 125% to 145% (depending on the interest rate).
How does this affect your application process? Say for your example your mortgage repayments stand at £600 a month. The amount your prospective property needs to fetch on the rental market would have to be somewhere in the range of £750 (125%) and £870 (145%) to pass the stress test.
A surveyor would be required to confirm this monthly rent projection. Your lender may reject the application or return to you with a lower loan amount if their valuation falls short.
Luckily we work with lenders who 'top slice', when the rental income falls short and take a holistic approach to the applicant by considering their personal income or other streams of income including from more properties to help leverage to a higher loan if need be.
Not Meeting The Lender's Affordability Checks
For a buy-to-let property, the minimum income required starts from about £25,000. This is to make sure that there is sufficient income that can handle any rental voids if the property is not tenanted.
Lenders mainly also look at your debt-to-income ratio. If the lender thinks your debt-to-income ratio is a cause for concern, you might not be able to get financed. In other words, if they believe that having a mortgage added to your financial obligations will cause you financial difficulty.
There is no set rule regarding the minimum income-to-debt ratio you need as most lenders will use their discretion in this.
Not Enough Deposit
A deposit for a buy-to-let purchase will typically be much higher than if it were for an ordinary residential mortgage, which can turn off first-time buyers.
The most typical number you'll hear on the market as a whole is 75% loan to value ( LTV), though some lenders may go higher. Deals with 80% or 85% LTV are not uncommon, but you probably won't find them on the high street, so if you find yourself short on deposits, you'll need a shrewd mortgage broker on your side.
Having Bad Credit
Any type of bad credit could prevent you from getting a mortgage. This is particularly true if the service provider is a high street lender and the credit issue is serious, such as repossession or bankruptcy.
The type of credit issues against your name will have a significant impact on your chances of success with mortgages. Most mortgage lenders base their lending decisions on the age, severity, and cause of your credit issues when evaluating a bad credit applicant; some are more lenient than others.
If they believe your credit problems put you at too much risk, some mortgage lenders will reject you outright, which will damage your reputation and make it harder for you to get loans in the future.
This is something a mortgage broker is aware of, but most importantly knows the specialist lenders out there who can help with clients who have experienced bad credit issues.
Accelerated Finance specialises in this field and can provide a fee-free quotation.
Issues With The Property
There's a good chance you'll need professional advice before moving forward if your purchase is an unusual property and one that has problems with it. Issues that mortgage lenders are wary of include damp, Japanese Knotweed, and a high risk of flooding, while some mortgage providers may find non-standard construction to be an issue-breaker.
Most homes in the UK that aren't made of bricks and mortar fall under the category of "non-standard construction," and to some lenders, this means they're un-mortgageable, depending on the precise nature of the building materials, which could prevent you from getting a mortgage.
Fortunately, there are mortgage lenders who specialize in both non-standard construction and properties that require work, and they are more knowledgeable about the ramifications of unusual build types.
Self-Employed With No Proof Of Income
Proof of income, specifically not having enough of it, is one of the main obstacles preventing self-employed people from getting a mortgage. Most well-known mortgage lenders will probably require you to provide two to three years' worth of accounts to support your application if you trade in this manner.
Many newly self-employed people struggle to secure the funding they require just for this reason alone, but if you fall into this category, you may have backup options.
Some lenders we work with have close ties who focus on self-employed clients and are more familiar with their needs and circumstances.
These lenders frequently take into account self-employed mortgage applicants with accounts for no more than a year, and they are frequently better qualified to evaluate non-standard income.
Old age frequently prevents people from obtaining a mortgage after retirement. You'll probably discover that your options are limited if you're a pensioner, and without expert knowledge on lenders, this can be challenging.
The good news is that, in certain situations, mortgage lenders will lend to senior citizens of any age. Undoubtedly, some lenders have age restrictions and won't mortgage anyone over 75, but others go as high as 85, and a small percentage of them have none at all.
Your Mortgage Debt is Already Maxed Out
Lenders may be wary of people who have a significant amount of existing mortgage debt and have already been very active in the market. As with everything, the amount that sets off their alarms will differ greatly between lenders, but the majority will have a ceiling in place that, if you go over it, will cause them to raise an eyebrow.
This could be a number or just the number of mortgages you have registered in your name. Some people will only be interested in what you owe them, while others will also consider your overall borrowing from other lenders. Once more, your friend in this situation is a reputable mortgage broker.
Application Errors: Submitting Paperwork with Errors or Missing Documents
Spend some time carefully filling out your mortgage application form and avoid guessing any of the answers. For example, estimating how long you've been at your current address rather then digging out the correct information as these small details can harm your application).
It can be stressful to submit multiple mortgage applications at once, which can also hurt your chances of being accepted.
Multiple applications don't deduct points from your credit score, but they do show up in the credit history searched by lenders. Multiple rejected applications are typically interpreted by lenders as a sign of risk
As part of our free service, we can assist with all the paperwork during the application process and have access to competitive deals in the market.
You're Not Registered on the Electoral Roll
To have lenders confirm your personal information, you must be registered to vote at your current address. However, this is a simple fix. You can simply follow this link
Get in touch with us so we can help without obligation if you're worried that any of the topics we've covered in this article will have an impact on your chances of getting a mortgage. Keep in mind that failing to meet every requirement on the lender's eligibility list could reduce your chances of success or result in an unfavorable interest rate.
Call 0208 952 5280 or submit an inquiry online, and we'll connect you with a broker for an obligation-free, free chat right away.
This article is intended to provide a general understanding of the topic. The contents should not be treated as advice.
Accelerated Finance Limited only considers applications for commercial or investment properties.
Accelerated Finance Limited is not regulated by the financial conduct authority and only provides unregulated loans via our network of lenders. Your property is at risk if you fail to make payments on a Mortgage Contract. Please note that Accelerated Finance Limited and its employees do not give financial advice or recommendations on any product.