Just one in five first-time buyers are being approved for a mortgage on their first attempt. That’s according to Aldermore bank which has found poor credit scores, low deposits and Covid-related employment challenges have caused a drop in mortgage approvals, leaving four out of five first-time buyers struggling to secure a mortgage.
Potential buyers are being tripped up by surprising money mistakes most people wouldn’t ever consider to be a risk, but there are a few simple things you can do to improve your application.
Here are some of the top reasons why mortgage applications are being rejected and what you can do to avoid making the same mistakes.
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Joke payment references
Whether splitting a bill, paying your share of a weekend away or even paying your rent, it can seem a laugh to use a joke reference when sending money. However, most lenders aren’t going to see the funny side.
Lenders could question what these references mean and might not believe you when you tell them it’s a joke.
Ask friends to use references which accurately describe the payment to avoid any confusion further down the line.
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Having a bad credit history
Having a bad credit history doesn’t automatically mean lenders will reject your application, but it can make things trickier.
Lenders want to see that you can be trusted with money. If you have poor credit, potential lenders will worry about your ability to make your monthly mortgage payment each month.
If you have bad credit don’t despair; get a copy of your credit report to see where the issues are and take steps to improve them.
A specialist broker can help explain your credit report and they’ll have access to lenders who will lend to you even with a bad credit history so it’s worth reaching out to a broker for help.
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Taking advantage of buy now, pay later offers
Buy now, pay later (BNPL) schemes like Klarna and Clearpay have risen in popularity over the past few years and while they provide you with a convenient way to shop, mortgage lenders don’t really like them.
They are cautious of people who use BNPL schemes a lot, as they can view it as living beyond your means.
Also, repayments are included in affordability assessments and this could affect the overall amount you can borrow, so it’s worth bearing this in mind if you’re planning on applying for a mortgage anytime soon.
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You’re not on the electoral register
Lenders want to know where you’ve been living for at least three years and to do this they check the electoral register to check it matches the information provided on your application.
It’s a common thing that people forget to do when they move, but updating the electoral register isn’t just good for your address history, but it can help improve your credit score too so it’s well worth doing.
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Being a generous gifter
If you’re in the process of being considered for a mortgage, gifting or lending someone money could raise questions from the lender.
Lenders need to be reassured that you’re reliable with money. If they see you’ve sent someone a sudden cash sum, it can raise questions, potentially affect your affordability calculations and delay your application decision.
The best thing to do to avoid this is ensure you’ve got a good financial buffer built up in your bank account to cover any non-essential spending.
You won’t need to do it for long, but avoiding any big, unexpected outgoings during the mortgage application process is advised.
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Underestimating your salary
Getting your income wrong, like not including overtime or your annual pay rise, can result in your application being rejected when the lender cross-checks your salary.
It’s important to also confirm exactly what details the lender wants to know before submitting your form.
A common mistake we see is people entering their monthly salary when the application asks for their annual salary or vice versa. It’s important to pay close attention to exactly what the form is asking for.
Also, enter any bonuses or commission separately to your basic salary to help the lender understand the full picture of your income – it’ll help when they calculate your affordability.
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Not updating your details
Life admin is, admittedly, pretty dull, but if you’ve moved house, changed your name or altered your personal details but not updated them officially, you could run into trouble when applying for a mortgage.
Your lender may not be able to verify your identity if you’ve put one name or address down on your application when you’re still officially registered under different details.
If that happens your application will be rejected before the process has even begun. Setting aside time to check your records and update any mistakes will be time well spent when it comes to getting your application approved – even if it’s not the most fun way to spend an afternoon.
Nicola Schutrups is managing director at The Mortgage Hut
