Buyer beware! Don’t inflate your income to get a mortgage

Mortgage

Anxious to get on the property ladder, it’s younger people who are more likely to be turned down.

Anxious to get on the property ladder, it’s younger people who are more likely to be turned down. Photograph: Tim Ireland/PA

Homebuyers have been warned to avoid inflating their income when applying for a mortgage, which can lead to their application being rejected. New figures show that one in six homeowners had been refused a home loan in the past. This crucially can lead to delays in being accepted for another at a later date.

Consumer group Which? found the highest number of refusals was in the capital – far higher than the national average – with one in three mortgage holders saying they had been refused in the past. London is followed by the West Midlands.

Among the reasons for banks turning people down has been applicants overstating how much they earn, such as including overtime payments with their main salary.

While some banks allow this and others permit certain percentages of extra payments to be included, a failure to be clear can result in problems, warns Which?.

It described the results of the survey as surprising and says that many people expect the application process to be straightforward with little chance of being refused.

It is typically those aged between 18 and 24 who are turned down with the numbers reducing as the applicants get older.

The rejection can lead to frustrating delays. More than half of those surveyed took a further three months to be accepted for another mortgage. This can result in delays along the buying chain and open up the possibility of a sale being stalled or even falling through.

Applying for a mortgage will be noted on someone’s credit history, so in the case that they are refused by one lender, a subsequent bank may query why the first one declined.

“While a mortgage rejection isn’t the end of the road when buying a home, it can clearly have a detrimental impact on the rest of your home-buying experience,” says David Blake from Which? mortgage advisers.

“Ensure you have all the documents and relevant information you need before submitting your application and don’t overstretch your finances by applying for a loan that you won’t be able to afford.”

There are a number of reasons why applications are refused – for example, a poor credit score, or being unable to provide proper documents.

Lack of a paper trail can arise from an applicant having just started a new job and not having evidence of payments. People may also ask for too much money and if they are not registered to vote where they live, this can also work against them.

Such simple factors could affect those who have lived in a house share and never had a bill in their name, or someone who moved from place to place and did not change where they vote when they switched.

Which? has advised people to consider getting a “mortgage in principle” which means the lender is willing to give money in theory, thus giving the buyer an idea of the budget that they are operating under.

Martin Lewis’s MoneySavingExpert.com advises that longer and more stable credit relationships are important. Buyers are advised to keep up to date on all bill repayments, as defaults will count against them, and avoid applying for credit in the three months before applying for a mortgage.

Lenders may probe how many times credit is applied for – if there are a large number of searches in a short space of time, this could raise alarm bells.

[“source=theguardian”]

Written by Loknath Das