What to do when the bank says no

Why would a bank say no to a loan?

There are lots of reasons why the bank might say ‘no’ to your application for a loan, a mortgage or something else. Some of the most common reasons are having a poor credit history, missed or late repayments on previous loans, low or unpredictable income, or having CCJs, IVAs or being declared bankrupt before. However, you could also be rejected for other reasons, such as not meeting a lender’s criteria for a specific mortgage product.

What to do when the bank says ‘no’

First off, don’t panic! Lots of people have their mortgage applications rejected each day, but with the right help, many will go on to get a mortgage! The best thing to do is get an understanding of your affordability before you apply for another mortgage. Working with a specialist mortgage broker can help with this, as they’ll have a better understanding of what lenders are looking for, and what could cause you to be rejected. They can identify the best deals available on the market that you are eligible for, and help you make the application smooth and seamless. 

You can also ask the lender who rejected you why they declined your application. Lenders are under no obligation to tell you why they rejected your application, but it won’t do any harm to ask. If they do give you a reason, you’ll know exactly what you need to do to get accepted next time!

Often, it’s your credit score that needs improving in order to turn that ‘no’ into a ‘yes’. Check in on your score to see what it is, and if there’s anything you can do to improve it. If you create an account with CheckMyFile, you can see a collated report from the three main credit referencing agencies used and trusted by banks (Experian, Equifax and TransUnion). That way, you can see if there’s anything on your credit report that could be holding you back. If you spot any inaccuracies or outdated information, ask the agency in question to make a correction.

If you have a large amount of debt, try to lower your credit utilisation (the percentage of available credit you’re currently using) by paying off as much of it as possible. For example, if you have a credit limit of £10,000 and you’re using £4,000 of it, this means your credit utilisation rate is 40%. There’s technically nothing wrong with this and lenders rarely share their exact criteria, but as a general rule it can be a good idea to keep your credit utilisation below 30%. A low credit utilisation rate can signal to lenders that you’re a responsible borrower because even though you have the ability to spend more money, you’re choosing not to. 

Learn more: What is a credit score and how to improve your score?

Applying for too many credit cards in a short space of time can also make it harder to get approved for credit in the future. Every time you submit a credit application, lenders will carry out a ‘hard’ credit search which will be visible to other lenders who look at your credit file. If lenders see several hard searches in a short space of time, they may assume you’re in financial trouble or that you rely too much on borrowing.

If your mortgage application has been rejected due to multiple hard searches on your credit file, try to wait a further 6 months or more before submitting your next mortgage application. If you need to get a mortgage sooner, speak to a mortgage broker. 

A good mortgage broker will know which lenders are most likely to approve your application and which ones are best to avoid. They’ll go through your finances with a magnifying glass, looking for ways to overcome common mortgage obstacles, increase your affordability and access better deals. They can even submit your application on your behalf, saving you time and effort!

It can sometimes make sense to work with a broker who specialises in a particular area, such as adverse credit, buy-to-let, or self-employed mortgages.  you’re struggling to meet lenders’ affordability criteria, you may be able to boost your buying budget with the help of an innovative property scheme such as shared ownership or Deposit Unlock.

If you have a parent or generous auntie with a reliable income, it may be possible to add their income to your mortgage application — without adding their name to the property. This is often referred to as a Joint Borrower Sole Proprietor mortgage, but we call it an Income Boost. 

With an Income Boost, lenders will assess your affordability based on your combined income and they may offer you an even bigger mortgage. The property will be all yours, but if you get into financial difficulties in future and you’re unable to keep up with your mortgage repayments, your family member will need to step in and help.