Seven reasons mortgage lenders turn you down

NatWest and Royal Bank of Scotland have a big advertising campaign on at the moment, trumpeting the fact that over the past 15 months the two banks have said yes to nine out of ten mortgage applicants.

It's great news for borrowers looking to move up the housing ladder, following years of tough times.

However, it's worth remembering that not all lenders are quite so keen to lend. So whether you're applying to NatWest, Royal Bank of Scotland or a separate lender altogether, make sure you don't give them any of the following reasons to say no!

1. You can't afford it

When you go to see a lender or a mortgage broker, they will do an affordability assessment based on the deposit or equity you have available and how much you spend each month on everything from gas and electricity bills to your mobile phone to student loan repayments.

If the sums don't add up, you won't be able to get the mortgage you want. The bigger your deposit, the better the mortgage deal you’re likely to receive – simply because you don’t have to borrow as much money from the lender.

If you only have a tiny deposit for your mortgage and you need to borrow a large sum from your lender, you may find you get turned down because the lender may be concerned you'll be unable to keep up with your monthly payments (particularly if your monthly earnings are not much more than your monthly mortgage payments).

And of course, since the credit crunch, many lenders have stopped offering mortgages completely for very small deposits – although things are gradually improving. So it’s well worth taking the time to save up as much as you can before you rush into applying for a mortgage.

2. You've got no credit history

You may think that never applying for any kind of credit is a good idea. After all, why waste your time getting into debt with a credit card unless you really need to?

But this can work against you.

That’s because when you come to apply for a mortgage – which is also a form of credit – you may find lenders are reluctant to accept your application due to your lack of (or rather, non-existent) credit history. This means lenders have no record of whether or not you’re good at keeping up with your payments and as a result, they may decide not to lend to you.

To avoid this issue, it can help to build up a credit history by using a credit card – providing you always pay it off in full and on time.

3. You've made too many credit searches

When you’re applying for a mortgage, be wary about getting too many quotes. You should check whether or not the lender will be running a credit check on you and if they are, you might want to reconsider.

Too many credit searches in a short period of time can adversely affect your credit score as it can appear as if you’re building up too much debt. So don’t make multiple applications for multiple deals. You’re much better off choosing one deal and then applying for it.

If you do get turned down, don’t rush off to apply for several other mortgage deals as this will only make things worse.

4. You're not on the electoral roll

If you’re not already on the electoral roll, get on it. Lenders use it to check that you live where you say you do. So if you’re not on it, this could affect whether or not you get accepted for your mortgage. Registering on the electoral roll is free.

It also bodes well if you have stayed at the same address for a number of years as lenders prefer stability.

5. You’re self-employed

If you’re self-employed it can be harder to get accepted for a mortgage because your income can be less stable. That means lenders may be worried you won’t be able to keep up with your monthly payments.

That’s not to say you can’t get a mortgage if you are self-employed. You can boost your chances by proving you have regular paid work and by ensuring your credit rating is squeaky clean.

6. You've got too much debt

When deciding whether or not you can afford a new mortgage, lenders assess how much outstanding debt you already have. What’s more, some lenders even assess how much debt you could have if you maxed out on all your credit cards and overdrafts – even if you haven’t actually done so.

So if you have any dormant accounts or credit cards you no longer use, it’s well worth closing them. And for those credit cards and overdrafts you do still use, ensure you keep up with your monthly repayments – and try to pay more than the minimum monthly repayment.

This will reduce the amount of debt you have, and will increase your chances of getting a mortgage.

7. You’ve had financial difficulties in the past

Generally, bad credit will stay on your personal credit file for six years, although missed payments will usually only stay on your file for three years.

However, if you have a County Court Judgement against your name (CCJ) or bankruptcy order, lenders will be able to see this on your credit rating for six years, and this can have a big impact on whether or not you get accepted for a mortgage during that period.

In the meantime, if you want to boost your chances of being accepted for a mortgage and you already have some form of credit, ensure you always make payments on time and keep within your credit limits.

And if you’re in a lot of debt and you’re struggling, make sure you speak to someone about it. You can get debt advice absolutely free from places such as StepChange debt charity, National Debtline and the Citizens Advice.

They will provide guidance on a range of options to suit your personal needs and help you with your debt problems.

Get advice

Finally, don’t forget, if you are looking for a mortgage, it’s well worth speaking to a mortgage broker. You can seek advice from our fee-free mortgage team via email, or over the phone – just head over to our mortgage centre.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker before acting on anything contained in this article.

We tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.