Being declined a mortgage is more than disheartening.
It’s a major setback because it will hamper all other applications you make shortly after being declined.
For a large loan product, it’s advisable that only two applications be made in the same year. With such a low application ratio, it’s definitely worth your while to take your time in choosing a lender and taking steps to ensure the application stands a good chance before you submit it.
4 Considerations for a Clean Mortgage Application
1 – No gambling transactions on your bank statement
Banks tend to check the last 6 months of your bank statement, if not going back a year. If there are large amounts or multiple smaller amounts going to online gambling sites, it might put your application under more scrutiny.
Gambling is considered risky, but only when it’s considered problem gambling. One user on the GamCare forum board writes about how the bank manager called him on the phone after noticing transactions to a gaming website. That goes to show you that there are many variables considered during the application process. Even with a stellar credit rating, the transactions on your bank statements could call for more scrutiny being put on your financials.
If you feel your bets are getting worrisome, get advice.
“The Gordon Moody Association, which treats the most serious addicts, estimates that they “will have severely affected the lives of at least 15 others in order to support their gambling”.
~ Neasa MacErlean: Independent.co.uk
For those affected by others, GamCare has a support and advice page for those affected by problem gambling.
One of the first problem gambling reports to be published by the Gambling Commission polled 4,000 people in Wales, which identified 1.1% of respondents as problem gamblers with a further 3.8% of all respondents being identified as low to moderate risk of problem gambling.
For Britain as a whole, The Independent reports that up to 3.5M people across the UK are in the at-risk category of problem gambling.
2 – Lenders are Scared of the Self-Employed
A few years back, the Self-Employed could easily get a mortgage through self-certification. These were no proof required loans, which led to this type of loan being dubbed the liar’s loan because it was easily manipulated. Now they’re banned.
Most lenders are going to scrutinise a mortgage application when it’s from someone who is self-employed. It makes them nervous because there’s income fluctuation. Lenders are extremely insecure and the self-employed scare them.
Your challenge to get an approval on a mortgage is to convince them that you’re a safe lender.
A couple of things that can help lenders feel more comfortable approving a Self-Employed mortgage:
Don’t do your accounts yourself
Have an accountant, preferably a Chartered Accountant, as that gives proof that your accounts are above board, and documented by a professional who stands behind your figures. It’s no longer based on your version of your accounts, which can be manipulated in many a way.
Request a copy of Form SA302 from HMRC
This form is a back up to support your claims made about your accounts, which preferably should be done by an accountant, but if you’re comfortable taking care of your own self-employed tax returns, you’ll definitely need this form. It’s a verification method in place to let lenders know that what you state is your income, is the same as what’s declared to HMRC.
Buckley’s Chartered Accountants have explanatory guidance on what’s needed and how to access the form using your HMRC online credentials.
3 – Review your spending habits
Chances are you aren’t looking too closely at your bank statements every month. That’s something you should be doing before applying for a mortgage because lenders will review your spending habits.
When asked for copies of your recent bank statements, this is why and not to verify your income. It’s to review your spending. They want to see you can afford the payments based on your income and not supported by Mum and Dad’s FPI payments to keep you afloat.
Look over your recent bank statements and see where your money is going. If (or when) you notice you could be developing better spending habits, refer to James Coney’s advice on This Is Money about spring cleaning your finances.
4 – Setup Your Accounts to Never Miss a Payment
People forget and that’s a real problem when it’s a payment to be made from your Current Account. That’s bad and is reflected by a lenders decision to refuse an application due to payment defaults, especially if it happens regularly.
If you’ve a tendency to forget how much is needed and when, there’s a fool proof way to make sure you never miss a payment again. What you need to do is set up a new Savings Account with the same bank you hold your Current Account with, and then have the bank link the two accounts. That way when your Current Account is short of funds, the shortfall that would result in the transaction failing and the payment missed, the amount your short of will be taken from your linked savings account ensuring the payment is made on time.
If you work with PayPal, you’ll know that if you don’t have the money in your PayPal balance, payments can be still be made automatically using your bank account as that’s your back-up funding source.
You can have your bank do the same with a Current and Savings account. Setup a backup funding source. That’s only useful if there are enough funds in it though so it would be best to work out how much your total Direct Debits and Standing Orders are, and then keep that amount in your Savings Account. If it is dipped into, top it up by the amount that was used. Then you’ll always have at least enough to pay a month’s worth of Direct Debits and any Standing Orders you have.