Once the initial (and major) hurdle of saving for a deposit has been taken care of, you've spent weeks trawling the online estate agents and driven around ever-widening boundaries of roughly where you want to live, it's time to get a mortgage. What could go wrong?
According to recent data, 35% of first-time buyers say they have experienced mortgage rejection, with some lenders and brokers citing unusual money mistakes as the reason for their application being declined.
James Andrews, money.co.uk’s senior personal finance editor explains any red flags, however harmless, that might concern lenders when reviewing your bank statements and application.
James explains: “When you apply for a mortgage, one of the things you need to do is hand over a few months’ worth of bank statements.
“The idea is for your provider to check you can actually afford your mortgage when your outgoings are taken into account - but they don’t just look at the total at the bottom, they also look for red flags.
“The problem some would-be borrowers have is that unless you’re careful, a perfectly innocent transaction could be mis-read by a lender and see you rejected.
“That means it pays to know what they’re looking out for to make sure you don’t accidentally block yourself from a deal you’d otherwise qualify for.”
Here are seven unexpected reasons your mortgage application could be rejected, solved by James:
1: Joke references when transferring money
“Whether you are being transferred money to pay for a shared pizza, or for a bigger sum of money like a holiday payment or rent, it might seem funny to include a joke reference when sending cash.
“It’s often a silly joke at the time between friends, but these references may generate additional questions for lenders, adding more time onto an already lengthy application process.
“Ask your friends to tag any payments with a reference that reflects what the transfer was actually for, such as ‘pizza’ or ‘summer holiday’”.
2: Sending someone a £100 for their birthday or making a big splurge purchase
“If you’re in the middle of a mortgage application, lending or gifting even a small amount of money could raise questions from the lender.
“The same goes for bigger purchases you might be tempted by, especially tempting if you see a deal now on furniture or appliances you’ll need for your new home.
“But seeing less cash than normal in your account can impact affordability calculations, and if something doesn’t add up, it could delay the application process. The main thing is to ensure that you have a nice buffer built up in your bank account to account for any non-essential spending during the mortgage application process.”
3: Betting or gambling transactions
“If you’re betting small amounts here and there (such as playing the lottery), then it won’t have an impact on your mortgage application.
“But lenders will take gambling transactions into account, assessing whether you’re likely to comfortably pay your mortgage on time every month. So, if your gambling causes a problem with your finances then it can also cause a problem with your mortgage application.
“Gambling can lead to serious personal and financial issues. If you need help, you can reach out to GamCare for support and advice.”
4: Getting a new job - even if it pays more
“Securing a new, higher-paying job is something we would usually celebrate, but it can cause problems when applying for a mortgage, as most lenders will only offer you one if you have been in your job for a while.
“It depends entirely on the lender's acceptance criteria, which includes their rules on who they are happy to give a mortgage to. Some lenders think it is riskier to give a mortgage to someone still in their probationary period.
“However, a higher salary can lessen the impact because it increases what lenders think you can afford to borrow. You will need to prove your new salary, so ask your employer to confirm it in writing.”
5: Saying you earn less than you actually do (without meaning to)
“Getting your income wrong - for example not taking account of your annual pay rise - could mean your application is rejected when the lender checks your salary.
“Also, double-check whether you need to enter your annual salary or your monthly salary as this is a really common mistake. You could end up telling your lender you earn £2,000 a year when you actually mean a month.
“Equally, if you receive regular bonuses or commission, don’t include them in your basic salary, enter these separately so your lender will be able to see the full picture.”
6: Accidentally saying you have more children than you do
“Looking after children is expensive, so lenders consider this, as well as how much you earn when they calculate if you can afford a mortgage.
“Something as simple as your browser automatically completing the section on dependents could lead to it looking like you have several children, therefore your income would need to be extremely high to have your mortgage agreed.”
7: Not having a paper trail for your deposit
“If you received some or all of your deposit as a gift, ensure you have a paper trail showing the money leaving and entering accounts so that the lender can follow its journey into your possession.
“Failing to have this can cause delays in your application, and if you can’t prove where the money came from, it may not be able to be included within your application.
“In the worst cases we’ve seen, people have had their accounts frozen and flagged as a fraud risk after transferring all the money from family, partners and savings accounts in on the same day - then straight out again to pay the deposit.
“And finally, think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.”
