Even if you’ve got a decent amount saved for a deposit and your earnings are good, there are things that could stop your mortgage application from being approved.
Here are four examples and what you can do to avoid them.
1. Using cheeky payment references
Being able to send money to friends from your banking app or online banking is so handy. The thing is, the banks give us the option to add a payment reference, and you're not alone if you've ever decided to have a bit of fun with it.
But we've seen first-hand how lenders can and do reject mortgage applications just because someone has used bad language in their payment references.
So keep it clean if you don't want to put yourself at risk.
2. Your deposit is too small vs. the house price
Most lenders ask for a deposit worth at least 5% of the property’s value.
If the house you want to buy is going for £250,000 they’ll expect at least a £12,500 deposit since they’d be lending you the remaining 95%.
They call this your Loan to Value (LTV) ratio. If your LTV is too high, your mortgage application is likely to be rejected.
You can avoid this happening by either saving a larger deposit or looking at cheaper houses. This is generally a good move as a lower LTV will generally give you a lower interest rate and cheaper monthly payments.
3. Your income vs. your outgoings
Lenders used to just look at how much you earned compared to the value of the house you wanted to buy. These days, lenders are much stricter about how they lend.
Affordability is the key word. This means how much you earn each month, minus how much you spend.
The lender will review your bank statements to see what your outgoings are like and make a judgement on what you could afford, mortgage-wise.
They will reject your application if they think you can’t afford the mortgage.
4. The lender’s valuation
Asking prices on houses are simply how much the seller wants for their property. A lender will want to do their own valuation on the property to see if it’s actually worth that asking price.
A lender may value a house differently than the seller, which affects your LTV ratio.
Say you have a £10,000 deposit for a property on the market for £200,000. That means you’d borrow the remaining £190,000 – giving you an LTV of 95%.
If the lender’s valuation found the house was worth £210,000, your £10,000 deposit would then only be worth around 4% of the property value – making your LTV too high at 96%.
A mortgage broker can help you avoid these kinds of pitfalls by helping you find the right mortgage for your personal circumstances. Some brokers charge a fee for their advice, but at Mojo Mortgages we don’t.
Our advice and service to you is completely free because we make our money on commission from the lender when you get your mortgage.