What to do if You’ve had a Mortgage Declined on Affordability

Getting a mortgage can be a complex process, and there are several aspects where things may not work out as you hoped.

One problem you may encounter is having your mortgage declined on affordability grounds.

But what does that mean, and what can you do to improve your chances of your mortgage application being successful?

This article will address the reasons why mortgages are declined due to affordability and help you consider your options if your mortgage offer is lower than expected or you are unable to remortgage due to affordability issues.

Read on to find out more or jump straight to a topic on the menu below…

Reasons why mortgages are declined on affordability

If you are declined a mortgage based on affordability, it usually means the lender has some concerns about your ability to meet the repayments based on the information you have supplied. Around 10% of mortgage applications are declined.

The most common reasons are:

Reason 1: Not enough disposable income

Your application will detail your monthly incomings and outgoings.

If the lender believes that your disposable income is too low to meet the mortgage repayments, they may decline your application.

The lender may use a mortgage underwriter to examine your income and expenses and assess whether you are a good risk for lending the amount you have requested.

They will do a stress calculation which checks the affordability of the mortgage should the interest rate increase by 3%.

Many lenders will lend up to 4.5 times your annual income, but it is possible, under certain circumstances, to work with a broker who can identify a lender who will do 5 times or 6 times your salary.

Reason 2: Lender won’t accept certain elements of income (overtime, bonus, commission, etc)

Your mortgage application may be declined on affordability if your lender does not allow certain elements of your pay to be included in the calculations.

Many, but not all, lenders will not allow applicants to add overtime, bonuses or commission to the basic pay when deciding on affordability because these elements are not guaranteed income.

Sales professionals who rely heavily on commission will find they can earn a lot more with certain lenders. Speaking to an advisor will pay dividends and save you a lot of time and effort.

Reason 3: Too much debt

The lender will review your current credit situation.

If you already have high debt, such as credit cards, store cards, or personal loans, the lender may decline your application on affordability grounds.

Each lender has its own acceptable debt levels, so being declined by one lender doesn’t necessarily mean you will get the same response from other lenders.

An experienced broker would be able to help you choose lenders who look at debt more flexibly.

Reason 4: The Lender doesn’t accept certain employment categories

In a similar vein to number 3, some lenders have lending criteria based on your type of employment.

If you aren’t in a salaried job, you may find it more difficult to secure a mortgage. Whilst there are lenders who will offer mortgages to self-employed people and freelancers, these applications are often subject to much more financial scrutiny than those of employed workers.

Brokers who have experience in helping self-employed applicants can assist you in finding the right lender for you.

What to do if your mortgage is declined on affordability

Firstly, don’t panic. One lender can sometimes decline mortgages, while another is happy to make an offer.

The important thing now is to get more information from the lender about why they have rejected you, so you can start to tackle the issue.

1)     Gather the relevant information about the rejection reason(s)

2)     Spend some time dealing with any issues on your credit report, such as late or missing payments

3)     Seek advice from a broker who specialises in helping people in similar circumstances to your own – we can help you with this by matching you with your ideal mortgage advisor, for free

What to do if your mortgage offer is lower than expected

Sometimes lenders will return with a mortgage offer lower than the amount you applied for.

This could be because they have valued the property you wish to purchase lower than the offer you have made to the seller. It could be because the lender is concerned about your ability to afford the larger mortgage, or it could be as simple as a processing error on the application.

If this happens, have your broker double-check all the financial information you supplied.

They may also be able to identify an alternative lender who would be prepared to lend the higher amount. Another option is to approach your seller, explain the situation, and see if they will accept a lower offer for their property.

After all, if the lender doesn’t think the property is worth the asking price, other buyers are likely to run into the same issues with getting a mortgage.

What about remortgaging?

It’s not just property movers who can run into difficulties getting a mortgage agreed. Existing homeowners can also experience issues with remortgages being declined for affordability reasons.

Some of the same reasons apply equally to existing homeowners as those outlined already. Still, there are a couple of other, unique reasons why you may be unable to remortgage due to affordability.

Your loan-to-value is too high

The loan-to-value (LTV) is the amount you are remortgaging compared with the value of the property.

If you borrowed £144,000 to buy a £180,000 home, the LTV is 80%. If your home dropped in value to £160,000 and you still have £136,000 outstanding to pay back, then the LTV is 85%, which could be a problem for the lender.

Your income has dropped, or your expenses have increased, since you took your initial mortgage

If you’ve changed jobs since you took your initial mortgage and your income is lower, you may have affordability issues with remortgaging.

If your monthly outgoings have increased substantially, this could also be a reason why your application is declined.

You’ve moved from employed status to self-employed

Similarly, if you have changed your employment status, some lenders may not accept your new status as part of their affordability checks.

You’ve missed mortgage payments or have mortgage arrears

Many lenders will be reluctant to offer remortgages to borrowers who have a history of missed or late payments or are still in arrears with their mortgage.

What to do if your remortgage is declined

Don’t reapply immediately without first trying to establish why your application was rejected.

Other lenders will usually offer you a remortgage deal, but you may need some help identifying the most appropriate lender before you reapply.

Having multiple rejections on your credit report could cause you problems in the future, so don’t rush into anything without taking advice from a mortgage broker who specialises in your circumstances.

If your remortgage has been declined because your LTV has increased, your broker may be able to find an alternative lender willing to lend on a higher LTV.

Another alternative might be a product transfer, which is basically switching to a new deal with your current mortgage lender.

If you were turned down for a remortgage with another provider, your broker could explore whether a better deal is available with your current lender.

Getting support for dealing with mortgage declined on affordability

Rather than wasting precious time trying to figure out exactly what the problem is and how to fix it, it makes sense to talk to a friendly, specialist mortgage broker who understands the whole market as well as your personal situation.

They can advise you on which lender(s) to approach next for the best chance of success.

At Online Money Advisor, we have a large network of experienced mortgage brokers who can access the whole market and find the perfect lender for your needs.

Maximise your chance of buying your own property or remortgaging for a better deal by calling our team today on 0330 822 0505 or making an enquiry online.