FINANCIAL WELLBEING HUB
Your guide to the Mortgage Market & Specialist Lenders
FINANCIAL WELLBEING
Life isn’t always straightforward, we understand that. And the same can be true of your finances. If your situation is complicated, you may struggle to get a mortgage from a high street bank or building society. They’re just not set up to deal with applications like yours – and many use automated systems to make their decisions. But don’t give up if you get a ‘no’ from a high street lender. You may just need to find one who deals with more complex situations..
These are called specialist lenders. And they can only be accessed through a mortgage broker.
This article will help you understand the role of brokers, how they can help, where to find them and how to select the right one for you. It also covers the broader, key topics of the mortgage market and specialist lending. These include the main reasons why mortgage applications are rejected, what specialist lenders and mortgages are, and how both can help you buy a home.
Why has your mortgage application been declined?
If you get turned down for a mortgage, it’s important you try to understand why.
Don’t simply try another lender – each application could affect your credit score. Instead, you can lean on a broker for advice and support. They’ll be able to speak from a place of knowledge and experience.
Here are the most common reasons why lenders decline applications:
Your credit score isn’t good enough. If this doesn’t seem right, you can check your credit file with Experian, Equifax and TransUnion, and correct any mistakes on there. Find out more about credit reports. |
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You’re not registered to vote. You need to be on the electoral register at your current address. This helps lenders confirm who you are and where you live. |
You’ve made too many credit applications. This makes it look like you have money problems, even if you don’t. Try not to take out new loans or credit cards in the year before you want a mortgage. |
You have too much debt. You can seek free debt advice from independent experts like Step Change. |
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You’ve taken out a payday loan. These are listed on your file for six years, even if you pay them off on time. Some lenders think they mean you won’t be able to regularly pay back a mortgage. |
You’re not what the lender is looking for. Some have a particular profile in mind – based on a combination of your age, income, employment status, the loan to value, and location of your property. |
Your deposit isn’t big enough. You may be turned down if you’ve only been able to save up a small amount. |
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You’re self-employed or a contract worker. You’ll likely have to show tax statements and business accounts for at least the last two years – and may also have to prove you have work lined up for the future. |
You’ve lived in the UK for less than three years. Most lenders are unwilling to lend to new arrivals, but not all of them. |
What is a specialist lender?
Specialist lenders look at mortgage applications case by case.
They use people, not computers, to decide who to accept. Looking beyond the numbers and thinking about the person applying. What does that mean for you? Put simply, specialist lenders are set up to deal with applications that aren’t straightforward. So they’re more likely to accept people that high street lenders – who have much narrower affordability criteria – would turn away.
How can they help you buy a home?
Being declined for a mortgage is never fun – but it’s not the end of the world. Whatever the reason, there’s a good chance a specialist lender will be able to help:
If you have a poor credit history
Specialist mortgage providers are more flexible. That means they can take into account how serious your credit issue is, how much time has passed, and the reasons behind it. They may even offer you finance if you have a County Court Judgment (CCJ).
If you’ve been bankrupt in the past
It’s still possible to get a mortgage if you’ve experienced bankruptcy. Some specialist lenders will consider you. It all depends on how severe the issue was and how long ago.
If you’re self-employed
Don’t have two years’ worth of accounts to show? Some lenders will consider your application based on just one year – sometimes even less.
If you’re an older borrower
You might think there’s a maximum age for mortgage borrowers – but there isn’t. Different lenders have different criteria. It’s always worth asking a broker about this. They’ll have a much clearer idea of how to source the right lender for your circumstances.
If you have a low income
Out of around 70 available lenders in the UK, only 20 have a minimum income. A specialist lender could help you secure a home of your own, even if your earnings aren’t that high. Your income decides how much you can borrow, but it doesn’t mean you can’t afford a mortgage at all.
Affordability calculators can be a sensible way to get an initial steer on what’s currently available to you. They’re not definitive, of course – a broker will help determine the exact figures – but they’re a useful place to start.
If you have a low deposit
Many people believe you need a 10% deposit to buy a home. However, many UK lenders offer mortgages with a deposit of just 5%.
Specialist lenders use people, not computers to decide who to lend to. This personalised approach increases the risk to the lender – and their rates reflect this. As an example, high street lenders ask for between two and three years’ accounts if you’re self-employed. Many specialist lenders ask for one year, or even less. Because that’s a bigger risk to them, the interest rate will normally be higher.
By helping you secure a mortgage, specialist lenders benefit you in both the short term and the longer term. Having a mortgage gives you the opportunity to improve your credit score. As long as you make your monthly repayments on time, you’ll be in a much better position after two years. Which means you’d have more options for your next mortgage – including high street lenders.
You can’t usually apply for a mortgage directly to a specialist lender. They aren’t on price comparison sites and your bank won’t tell you about them – they only work through specialist mortgage brokers.
Brokers are mortgage experts. So they’ll know which deals are right for you, and how to get the most competitive rates. They can also suggest options you may not have considered.
As mentioned, mortgage brokers can be invaluable. According to the Financial Conduct Authority, 75% of people who took out a mortgage through a broker said they got a better deal than if they’d done it themselves. But it’s important you find the right one – not all brokers have access to all lenders.
Try to talk to more than one broker, so you can decide which broker is right for you. Here are a few things to consider:
- Are they whole of market? As some brokers work with a restricted panel of lenders.
- Do they charge a fee? Some charge a fee, while other won’t. Neither is wrong, but it’s good to know where you stand.
- What are their qualifications? The most common qualification for mortgage brokers is the CeMAP (Certificate in Mortgage Advice and Practice).
Landed on the broker you want to work with? Make sure they’re regulated by the Financial Conduct Authority before you start giving out your personal information.
You’ve selected the right broker for you. Then it’s time to start the process of finding a mortgage through a specialist lender:
- This helps the broker understand your circumstances and financial goals. Solicitors, valuers and any SME parties involved in the process will be consulted.
- Lender matching. Based on your consultation, the broker will find you suitable specialist lenders.
- You’ll need to provide proof of income, credit history, and details of the property you want to buy.
- The broker submits this to your chosen specialist lender.
- Carried out by the lender – this looks at your financial situation and the property’s value and condition.
- Approval and Offer. The lender gives you a mortgage offer, personalised to your situation.
- After final legal steps, the mortgage deal is completed. (This isn’t the same as the ‘completion’ you may associate with moving-in day.)
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