25 Feb 2020
Being rejected for a mortgage can be a crushing blow for anyone wanting to make their first step onto the property ladder.
Financial services company Moneyfacts has now taken a look at the key reasons why mortgage applications are turned down, and how to improve your chances of getting a thumbs up.
It says the common belief that would-be borrowers will be offered a mortgage at three times their income is just a myth, and adds that lenders now have a much more individual approach to assessing mortgage applications.
All lenders assess whether the applicant can afford the mortgage repayments, including if the interest rate was to increase.
Moneyfacts adds: “A mortgage lender will likely request three months of bank statements, which will enable them to see the applicant’s income against their outgoings.
“The lender will also want to make sure that even with mortgage repayments the borrower will be able to repay other debts, pay their monthly bills, including their weekly food shop, and even have money left over for entertainment.”
Moneyfacts points out that, while the lender is not interested in how a borrower spends their disposable income, some lifestyle choices can have a negative impact on a mortgage application.
One red flag for mortgage lenders is if a would-be borrower has a regular gambling habit. If they are in debt and continuing to gamble constantly, it could result in their mortgage application being rejected.
Moneyfacts highlights that any lifestyle behaviour which could be considered irresponsible can result in a mortgage application not being approved.
For example, going on expensive holidays while in debt can result in a mortgage application being turned down.
Simple steps, such as being on the electoral register and paying off debts can improve the chances of mortgage success.
Moneyfacts also advises that, in the six months leading up to a mortgage application, potential borrowers should consider their lifestyle choices and maybe put off big-ticket expenses until the house move has happened.
Eleanor Williams, a finance expert at Moneyfacts, said: “Following the Mortgage Market Review, there has been a huge shift in how lenders assess potential borrowers. Rather than simply looking at income alone, lenders have a responsibility to assess the overall financial status and activity of applicants.
“This ensures that they are considering not just your ability to meet the new monthly mortgage repayment, but also taking into account the crucial expenses we all have to meet – our existing credit commitments, childcare costs, even ensuring you budget for clothing for example.”
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