In this brief guide, we are going to provide a list of reasons why you could have an excellent credit score but can still be refused a mortgage.
Reasons why you could be refused a mortgage with an excellent credit score:
There are various reasons why you could be refused a mortgage even with an excellent credit score. Some of the main reasons include:
- Your mortgage deposit is little
- Non-standard construction property
- Unsuitable mortgage product
- Your age
- Complex income
- Too much debt
- Financial associations
- CIFAS Marker
- Employment & Income
Your mortgage deposit is little
If your mortgage deposit is low then you may find it much harder to get a mortgage approved even with an excellent credit score.
Most mortgage lenders will have a minimum loan-to-value rate they will accept based on the mortgage product and the mortgage affordability of the borrower.
Most mortgage lenders also have a minimum mortgage deposit amount across all their mortgage products.
This means, even with an excellent credit score, you can still get refused for a mortgage if you do not have a sufficient mortgage deposit.
You can increase your mortgage deposit by using various government schemes.
Government schemes help you reduce the amount of mortgage deposit you may need to put down, reduce the price of the property or create a structure that increases your mortgage affordability much sooner than it would have been.
Some of these include first-time buyer government schemes whilst others in this list are accessible to you even if you are not a first-time buyer.
Government schemes are not available to you if you are getting a buy to let mortgage.
The Government schemes include:
- Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan– gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy– allows you to buy your home at a discount price.
- Preserved right to buy– same as above.
- Right to acquire– similar to the above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.
Non-standard construction property
A non-standard construction property refers to one where non-standard material has been used.
Mortgage lenders are warier when it comes to lending on these types of property.
A non-standard construction property will require a much higher mortgage deposit and will usually have a higher APR.
This means that the monthly mortgage repayments may be much higher and even someone with an excellent credit score may not be able to afford the monthly mortgage repayments and hence refused a mortgage.
Unsuitable mortgage product
In some cases, you may have applied for a mortgage product that is unsuitable for you for a variety of reasons and hence even with an excellent credit score the mortgage can still be refused.
An example of this could be applying for a mortgage product which only lends to borrowers with a certain number of years of experience or number of existing properties.
In this case, even with an excellent credit score, you will still be refused a mortgage because you simply don’t meet the mortgage lenders requirements for that product.
In some cases your age may be a reason why even with an excellent credit score you are refused a mortgage.
Some mortgage lenders have strict requirements on what their maximum age for lending is and if you surpass this age or are close to it then the mortgage lender may not lend to you.
Maximum ages when considering lending can be explained like this: the mortgage lender is simply concerned that a borrower beyond a certain age may not be able to financially support themselves or there is a risk that they pass away before the mortgage has been paid off in full.
Typically the maximum age when considering residential mortgages is 75 but this will differ from one mortgage lender to another.
Another reason why your mortgage may be refused even with an excellent credit score is if you have a complex income structure.
Mortgage lenders have various requirements for income and some mortgage lenders will accept income structures which others may consider complex e.g overseas income, income from trusts etc
Too much debt
Most mortgage lenders will expect your debt to be covered by a percentile of your income.
This is known as your debt to income ratio. Most mortgage lenders will expect this to be less than 45%.
If your debt to income ratio is above this then you can expect your mortgage application to be refused regardless of your excellent credit score.
Another way to mitigate a high debt to income ratio will be to put down a much larger mortgage deposit but this may not stop the mortgage lender from putting you on a higher APR product due to the risk you pose as a borrower.
A good credit score is not always the only solution. In some cases, you may have a good credit score but a financial association with someone with a negative credit score could affect your mortgage affordability and cause you to be refused a mortgage even with an excellent credit score.
In some cases, you may have lived with this person, shared a credit account with this person or even had both of your names on the same utility bill.
If you have a CIFAS marker then you could be refused a mortgage even with a credit score as the mortgage lender will see you as high risk.
Employment & income
Another reason why you could be refused a mortgage when your credit score is excellent is due to the fact that your income may not be enough to afford the mortgage you are after.
Mortgage lenders work with mortgage multiples which they use to measure how much mortgage they may be willing to offer you.
A mortgage multiple is a number which is used to multiply your income and determine an amount which the mortgage lender may be willing to lend to you.
If your income level falls below the maximum the mortgage lender will lend to you based on their mortgage multiple then you could be refused for a mortgage even with an excellent credit score.
Another reason why you may be refused a mortgage, even with an excellent credit score, is if your employment history is not long enough or not stable enough.
Most mortgage lenders will like to lend to borrowers who have been at their current employers for at least 3 months.
If you have been with your current employer for less than 3 months then it may be best to wait before applying for a mortgage.
If you have had too many employers in a short space of time and your employment history does not look good then you may have
Use a mortgage broker for your mortgage in principle
You may want to use an independent mortgage broker to help you get a mortgage on your new home.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.
This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.
It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.
Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.
They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.
In this brief guide, we provided a list of reasons why you could have an excellent credit score but can still be refused a mortgage.
If you have any questions or comments please let us know.