Reasons Why Personal and Commercial Mortgages Get Rejected and Their Solutions

August 26, 2022 Sahil

Whether you are taking out a mortgage for a residential purpose or for commercial usage, under both circumstances, you will have to meet the eligibility criteria, and that is more or less the same. The mortgage market is a highly profiteering market that could easily stand the blow of the pandemic.

Buyers are tied up with a long repayment plan, giving lenders an opportunity to make money. Yet, despite this belief, the market is strict with its lending practices. You are not buying a cake from a bakery shop where you paid money, picked up your parcel and headed to your home.

You are requesting a lender to borrow a large amount of money, which involves greater risk. No lender would ever try to take on risk by lending money to someone who cannot afford to pay it back. Although they have legal actions to take against them, it involves hassle and a lot of money and time.

According to a recent report, the number of residential mortgage repossessions rose by 5%, although buy-to-let mortgage repossessions went down by 8%. The mortgage industry is trying to look for ways to ensure only those borrowers get the nod that can settle the whole outstanding dues.

Well, buyers have another concern. They want to ensure they get the approval for a mortgage regardless of its type.

Reasons why mortgage applications get turned down and what can you do to avoid it?

If you have been turned down, you are not alone. Millions of others are in the queue who are clueless about why it happened to them and what they should actually do to avoid this problem down the line.

Poor credit score

Bad credit history will be a snag in getting approval for a mortgage. Since your previous payment record is not good at all, a lender will never be able to trust you.

They are not giving away but lending you money, so they will peruse all possible scenarios to ensure you can repay the mortgage and credit rating is one of them. If your credit history is bad, you cannot have a good impression on a lender even if you earn a lot of money.

Solution

Check your credit file with all credit bureaus to see what it looks like, and if you spot any error or some kind of problem, you should immediately ask them to get it rectified.
Pay off your outstanding debts so the debt-to-income ratio is not very high at the time of taking out a mortgage.
If your credit score is poor despite settling all outstanding debts, you should consider taking out a credit builder loan.
If you use a credit card, make sure it allows you to pay back the balance in monthly instalments. Your credit points will go up, leading to an improved credit score.

Too much debt

Suppose you have a monthly income of £2,500, and one-third portion of your income goes toward your credit card bills, payday loans, education loans, etc., and you are to use the rest of your income for your regular monthly expenses.

Of course, you will be left with little income. If the estimated mortgage instalment is worth £700, do you think you will be able to pay it down? If you anyhow manage to do so, you will have to cut back on your expenses and probably avoid building an emergency cushion. This is the worst part if you compromise with an emergency cushion.

Solution

Too much debt will raise many doubts in a lender’s mind, and chances are they will straightaway cast aside your application. You should have no debt at all at the time of taking out a mortgage. Make sure you have cleared them all and that they have contributed to your credit building.
In case you are to apply for an emergency loan, you do not need to worry about that, but it should not be past the due date.
Avoid taking out a payday loan. They are considered the worst to appear on your credit file when applying for a mortgage. Since a commercial mortgage in Edinburgh is expensive, you cannot afford to have your report with too much debt.

Too many credit applications

You may ignore this problem, but too many credit applications can reduce your chances of getting approval for a mortgage.

Each time you put in an application, five points will be pulled from your credit score, and if you have applied to five different lenders, for example, your score will go down by 25 points, and it will not be shocking to see that your score has fallen in the range of bad credit rating.

Solution

If you are trying to know which lender offers the best interest rates, you do not need to go from one to another, especially within a very short period. Instead, you should get a Mortgage in Principle that will let you know how much you can borrow based on your current financial position and at what interest rate. A good part is that you will not have to lose your credit score as they will run a soft credit check. However, the Decision in Principle, does not reveal the exact interest rates because they will check your credit score at the time of processing.

Not having enough income

Another reason is insufficient income sources. Not to mention you will be straightaway denied if financial sources are not strong enough to pay the mortgage debt. You can get a Decision in Principle, but this is not going to be a guarantee because your financial condition may change by the time you decide to apply for it.

Solution

Use an online mortgage calculator to see how much it will cost you monthly and in total.

The final word

Getting a residential or commercial mortgage can be quite challenging because there are a number of reasons for being rejected, but you can take certain steps to minimize the rejection. Talk to the best online mortgage broker in the UK.

They will guide you throughout the mortgage application process. In fact, they will help you know how to increase your chances of approval and the right time to put in the application.