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Homebuyers: this is why banks won’t give you a mortgage

Report claims lenders are using outdated mortgage approval criteria

Mortgage lenders are scuppering the home ownership dreams of first-time buyers by using outdated approval criteria, according to a new report.

The specialist lender Together claims that would-be buyers are being rejected for home loans because of their job types and lifestyles, rather than affordability reasons.

Here, we take a look at the data and offer advice on how to get approved for a mortgage.

  • For advice on getting the right mortgage deal, call Which? Mortgage Advisers on 0800 197 8461, or fill out the form at the bottom of this article for a free call back.

Reasons for mortgage rejection are ‘the new normal’

For the research, Together spoke to 2,003 people who had failed to get a mortgage and discovered that 54% of applicants were rejected because of what it describes as ‘new normal’ ways of living.

Respondents told Together they had been rejected for the following reasons:

Low credit score/lack of credit history 18%
Low earnings 16%
Too much debt/too many credit applications 13%
Employment type (self-employed/contractor) 12%
Buying a non-standard property 10%
Small deposit 9%
Insufficient employment history 3%

Together says that several of these reasons simply reflect trends in how people live their lives in 2018, rather than the fact they can’t afford to pay back a home loan. The report claims the following:

  • Employment type: according to Office for National Statistics (ONS) data, the UK’s self-employed population has increased by 25% in the past decade (read our self-employed mortgages guide if you’re one of them) and lenders are failing to adapt to this.
  • Buying a non-standard property: the number of converted properties has increased by 19% in the space of a year, according to the English Housing Survey, but it’s still too hard to get a mortgage on a non-standard property.
  • Low credit score/lack of credit history: buyers are rejected as a result of a lack of education on the importance of having a strong credit score. Our guide to bad credit mortgages could help if you’ve been rejected for this reason.


Computer says ‘no’

The report also suggests that the automated systems commonly used by banks are to blame for rejections.

Pete Ball of Together, says: ‘There has been a paradigm shift in the UK mortgage market. People’s ways of living are constantly evolving, but the mortgage market is stuck in the past when it comes to adapting to the changing needs of customers.

‘This is largely due to the increasingly computerised process used by lenders, which automatically declines customers whose day-to-day circumstances do not fit their tick-box model.

‘As a result, more than half of mortgage applicants are rejected for reasons that are essentially becoming the norm, pushing more customers further away from achieving their property dreams.’

Millennials face credit report issues

But what of buyers saving for their first home?

Millennials (defined in this report as applicants aged 18-34) primarily faced struggles related to their credit scores or existing debt, although more than a quarter said that they were rejected due to having unsuitable employment, or because they were trying to buy a non-standard property.

Low credit score/lack of credit history 31%
Too much debt/too many credit applications 19%
Employment type (self-employed/contractor) 14%
Low earnings 14%
Small deposit 13%
Buying a non-standard property 12%

If you’re struggling to get a mortgage for any reason, it’s worth consulting an independent mortgage broker, who should be able to advise you on the lenders most likely to help you out.

How to get yourself mortgage ready

Together says many would-be buyers feel let down by the mortgage application process, with nearly half (49%) saying that they were either put off going through the process again, or were unsure what their options were after a rejection.

This might all sound a bit disheartening, but don’t worry, as there are things you can do to improve your chances of getting a mortgage.

  • Ensure it’s the right time to apply: don’t rush into applying for a mortgage. Often, spending time saving a bigger deposit makes it more likely that your application will be accepted – and you’ll usually qualify for better deals, too.
  • Make sure your credit report is up to scratch: look at your credit report six to 12 months before you consider applying for a mortgage to see if there are any issues you need to address. If you have a poor credit history, it’s worth trying to improve your score, as bad credit mortgages tend to have much higher rates than products for people with better credit scores.
  • Get your documents ready: if you’re happy with your finances and are satisfied that it’s the right time to buy, it’s time to gather the various documentation required for a mortgage application. You’ll need the following: proof of income, proof of identity, proof of address and details of your monthly outgoings.

You can get more tips in our full guide on improving your mortgage chances.

Five things that slow down mortgage applications

  1. Submitting your tax return at the last minute: if you’re self-employed, you’ll need to provide proof of your income for the current year (dating back to the previous October) by showing your SA302 tax calculation. You can only get this once you’ve submitted your tax return.
  2. Having no proof of building up your deposit: lenders won’t just want to know how much deposit you’ve got – they will want to know where the money’s come from. If you’ve been gifted a deposit, you should get a letter confirming this from whomever gave it to you.
  3. Making mistakes on statements: even small spelling errors on statements or payslips can cause lenders to reject them as evidence of income, so check and double check every detail.
  4. Changing your name after marriage: failing to provide evidence of a name change can result in lenders struggling to verify your identity, so inform your financial service providers of your name change long before applying for a mortgage.
  5. Using scanned documents rather than originals: some lenders won’t accept scanned copies of documents or printed statements from online banking, so you may need to go to a branch in person to get your bank statements printed.

Advice on your mortgage options

For a free, friendly chat about the best course of action for you, whether it’s saving more and working on your credit score or researching deals and getting ready to apply, call Which? Mortgage Advisers on 0800 197 8461 or fill in the form below for a free call back.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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