Applying for a mortgage and arranging one on a customer’s behalf in the UK can be a complicated process for all involved, but in most cases the end result benefits everyone. However, there will be situations where a lender will unfortunately have to reject your customer’s mortgage application for one reason or another, so it is important that you have the knowledge and support available to see them through this difficult situation, which they themselves may not be prepared for.
In this article, we will examine some of the common reasons a customer may be rejected a mortgage, as well as identify what you can do as a mortgage broker to support them and ensure that they continue on the right track leading to them, ultimately owning their new property. Not only that, but we will also touch on what specialist lending is and how working with these more flexible mortgage providers might be the ideal solution for delivering the best outcomes for your customers.
Why would a customer be rejected a mortgage?
There are a number of common causes behind a mortgage refusal. The problem is however that not all lenders will provide you or your customers with an explicit reason as to why theirs in particular has been refused. You can let your customers know that they can ask as to why they might have been declined, but the lender may not always be willing to give them an answer. To make things easier during conversations after a mortgage refusal, we have put together a list of some of the more frequent reasonings behind a refusal.
Adverse credit
All UK lenders will conduct a comprehensive background check on a potential loanee and an adverse credit history will cause major issues for a customer looking to apply for a mortgage. A lender will be more hesitant to lend money to a customer with a poor credit history, as this would suggest they have difficulty meeting regular credit commitments and may continue this trend with their mortgage repayments.
Excessive debt
Similarly to a customer having a bad credit history, a customer who currently finds themselves paying off massive amounts of debt may also struggle to obtain a mortgage. Not only will lenders be less likely to lend a customer high amounts but, as a mortgage broker, it might not be in your customer’s best interests to put additional financial pressure on them.
Not on the electoral roll
If your customer applies for a mortgage without actively being registered to vote on the electoral roll, then their application will be rejected. Lenders use the electoral role to confirm an applicant’s details such as their identity and location, so a customer not active on this register will inevitably cause issues for a creditor.
Negative financial association
As stated previously, a lender will always examine an applicant’s credit history, but it isn’t just their own that is looked at. While having a joint bank account can be useful, staying financially associated with someone who has poor credit can actually negatively impact whoever is sharing the account with the individual, even if their own credit score is healthy. Customers need to be aware that having tangible financial links to someone with an adverse credit history may reflect just as poorly on them when it comes to securing a mortgage.
Wealth tied up in assets
A regular income is essential for customers looking to secure a mortgage. This means that even if a customer is financially wealthy due to their money being tied up in assets, problems will arise during the application process. While this isn’t the case all the time, a customer who has committed their finances to say, a high-value property at the cost of a regular income, may struggle to obtain a mortgage then.
Low income
A regular income is needed for an applicant to demonstrate clearly to creditors that they will be able to meet the financial demands of monthly mortgage repayments, plus any other costs associated with owning a property which you can read all about here. A lender will examine a potential applicant’s current (at the time of applying) and expected (following a successful mortgage policy arrangement) outgoings in regard to how much they are able to bring in over the length of their mortgage, and obviously a lower income may result in the borrower having less confidence in the customer’s ability to keep on top of payments.
How do you arrange a mortgage for a customer with bad credit?
The good news is that arranging a policy for a customer with bad credit is still possible, regardless of why they may have had their application rejected. The drawback of having to arrange a ‘bad credit’ mortgage however is that not only is the process less straightforward, but your customer may be limited by how much they can borrow.
- Larger deposit – Lenders may be more likely to lend to a customer with bad credit if they are able to put down a larger deposit. Typically, a deposit would reflect around 5 – 10% of the property value, but a lender may instead ask your customer to put down 20 – 25% instead.
- Guarantor – A guarantor will allow your customer to prove to a lender that they will have the means to meet any mortgage repayments, even if they cannot. Suggesting to your customers that they should obtain support from a guarantor will therefore improve their chances of being approved for a mortgage even if they have a poor credit score.
- Higher interest rates – Since having a poor credit score depicts an aspiring homeowner as a greater risk in the eyes of a lender, interest rates on their mortgage repayments will often be much higher. Discuss with your customers if this is something they can manage when it comes to deciding which type of mortgage they would like.
How can specialist lending help customers who have been rejected a mortgage?
Specialist lending should be something most brokers will be familiar with at this point already. If not then we recommend having a read of our recent article here which discusses what specialist lending is and what a specialist lending portfolio looks like for an adviser. Customers with adverse credit are some of the most common to be found when offering specialist lending since their circumstances aren’t actively accepted by all mortgage companies. The brokers and mortgage providers who choose to offer options to customers with low credit score fall under a category known as specialist lenders, since they provide unique services, on a case-by-case basis, to support those in more complicated financial positions. There are a number of specialist lenders within our network here at PRIMIS, who have a more understanding approach to their lending criteria. Make sure you reach out to learn who might be best suited to your customers who are struggling to obtain a mortgage
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