Getting a mortgage can be very exciting, but unfortunately mortgage applications being declined is part of our world and dealing with the potential subsequent disappointment, or very least delay. So, what are the most common reasons that an application can be declined, and is there a way to foresee it happening?
Bank Account Conduct
Many lenders request sight of bank statements, and for those that do, a wide range of issues can come up
•Unreturned Direct Debits
•Going over your overdraft limit
•Heavy overdraft usage i.e salary payment not clearing the overdraft
•Payments to debt collection agencies
Prior to a mortgage application, a mortgage advisor would check the bank account conduct to ensure to the best of their ability, that it would meet the lenders criteria. Some parts may be underwriters discretion and would be dependent on the case overall.
An underwriter will either automatically verify the income, or they may check income evidence. If the income isn’t as disclosed this will be adjusted. Variable income, such as bonuses and overtime, is often under writers discretion, and they would be looking at sustainability. For example. does the year to date correlate or can the applicant demonstrate they have been earning this consistently.
If not all income is verified, this would most likely result in a maximum loan, particularly in shared ownership where the share is expected to be maximized, therefore pushing the client to their maximum affordability with the lender. In order to best prepare, a mortgage advisor would check the income before submitting a mortgage application, ensuring the income evidence matches what the applicant has disclosed.
If the applicant has failed to disclose all credit commitments this will likely cause a maximum loan. If this happens the advisor would normally review a copy of the credit file. It could be that the applicant has recently repaid something, in which case it may be challenged. Or it could be that unfortunately they have simply forgotten to disclose, therefore making the case unaffordable.
All mortgage applications will be subject to a mortgage valuation. At the very base level, the valuer will go out to confirm the proposed mortgage security is acceptable for the lender. Unfortunately, there are times when the valuer either deems the property unsuitable or not to be worth the sale price. This is down to valuers comments, so therefore very difficult to predict.
Ultimately many cases are down to underwriters discretion and there could be different “flags” they are looking at, including possible areas for concern like:
•Lives at home now with no history of maintaining a household
•High level of credit commitments
•Short time in job or multiple jobs
•Some poor bank account conduct
•Deposit from own savings
•Currently rents or is a homeowner
•Low level of credit, which is well managed
•Good bank account conduct ieno overdraft
•No adverse credit
If an application has a negative factor, like using an overdraft regularly, however the person(s) have saved their own deposit or have no active adverse credit, then this could still be accepted. If an applicant has heavy overdraft usage, lives at home and has a gifted deposit this could start to be viewed more negatively. The important thing is for the mortgage advisor to build a picture of their applicants, and have a full understanding of what the lender will be looking for.