Mortgage in principle denied - why?

happyindebt

We are selling our house, and we have a Nationwide mortgage with £310K left. Our house is selling for £630K (so we'll have some cash once it sells).
We tried to get an agreement in principle with Nationwide for buying our next house, but it was denied, please help me understand why! 
Bad stuff:

1. We have 3 loans amounting to £37K;
2. We took a mortgage holiday of 3 months during Covid;
3. There is a hard credit search on my husband's file in the last 3 months.

Good stuff:

1. Our credit files have excellent scores;
2. We don't have any debts on credit cards;
3. We always paid our Nationwide mortgage in time.

So, what I'm wondering is: what is affecting their decision? Is there something I can fix to improve our chances? 

• The £37K loan we have will be easily repaid once we sell the house, but do you think that we should try and repay some of them now, so that the debt goes under £30K? Is there a loan threshold after which alarm bells start ringing for the lenders (maybe 30K)?
• Should we transfer the loans to the credit cards? Not sure whether it looks better or it doesn't make a difference?
• Should we pay back the 3 months of mortgage holiday we took?

Which of these 3 solutions do you think could help?

Many thanks.

[Deleted User]

Out of those, the large debts and the mortgage holidays are going to be the biggest problems. The mortgage holidays tell them that you have no savings to weather a storm. 

But you also need to check your three credit files each - no the pretend scores, but the data.  Are there other negatives you are not aware of, or have forgotten?

Lending criteria have also tightened.

happyindebt

Deleted_User said:

Out of those, the large debts and the mortgage holidays are going tp be the biggest problems. But you also need to check your three credit files each - no the pretend scores, but the data. 

Are there other negatives you are not aware of, or have forgotten?

No, I checked all three of them yesterday (Experian, Equifax and Transunion) and there is nothing negative on any of them. All is green and good! 

MattMattMattUK

There are not thresholds for debt, but having a large unsecured debt is not a good thing. What throws up warning signs for lenders is accumulating debt, which you have done.

You have taken a mortgage holiday, paying extra will not change that. Whilst it will have little effect in the medium to long term, being that it will have only been a few months ago that you told the bank that you were in such financial difficulties that you could not pay your mortgage then you can understand why they would be cautious about lending you any more money at the moment.

You have also not said what you earn, how much you are trying to borrow and how much you will be able to put down as a deposit, there will be £283k left over after mortgage and debt repayments, but you also have to account for fees for selling, as well as for the new house purchase, stamp duty, legal fees when buying etc. so maybe around £250k?

MattMattMattUK

flavianatill said:
No, I checked all three of them yesterday (Experian, Equifax and Transunion) and there is nothing negative on any of them. All is green and good! 

Then you are not reading them correctly, because from a lenders point of view a mortgage holiday and £37k of unsecured debt are bad things. Ignore the scores, ignore the idiotic colour coding, look at the information in the file itself. 

foxy-stoat

If you applied for the AIP with the £37,000 debt going forward, that would be a reason.  If you applied stating that the loan would be cleared with the proceeds of the house sale then it may be your numbers are not stacking up.  You have £283,000 equity, less fees/legals - so how much are you buying your next house for?

Have you tried another lender or broker?

haras_n0sirrah

Nationwide hate that you took a mortgage payment holiday - that plus the debt would be the reason. If you look at the nationwide board there are countless others in the same position
Other lenders are less strict with the payment holiday.
Speak to a broker. If you don't have one some of us who post here are brokers and we are identifiable by our signatures. We are not allowed to approach posters but we are able to respond to pm's asking for help.

happyindebt

MattMattMattUK said:

There are not thresholds for debt, but having a large unsecured debt is not a good thing. What throws up warning signs for lenders is accumulating debt, which you have done.

You have taken a mortgage holiday, paying extra will not change that. Whilst it will have little effect in the medium to long term, being that it will have only been a few months ago that you told the bank that you were in such financial difficulties that you could not pay your mortgage then you can understand why they would be cautious about lending you any more money at the moment.

You have also not said what you earn, how much you are trying to borrow and how much you will be able to put down as a deposit, there will be £283k left over after mortgage and debt repayments, but you also have to account for fees for selling, as well as for the new house purchase, stamp duty, legal fees when buying etc. so maybe around £250k?

We want to borrow £250K for a house worth £400K (with £150K deposit). We are self employed, earning £42K a year (last 2 years average). 
Do you think it's better to try and reduce the loans, rather than pay back the 3 months of mortgage holiday? We took the mortgage holiday just because it was easy to get during Covid, not because we really needed it - we stupidly didn't think it would affect future lending decisions. 

MattMattMattUK

Your best option would be to speak to a broker rather than trying to go direct to Nationwide, who are notoriously fussy, especially for the self employed.
When you say "we", do you mean you earn £42k each, or combined?

foxy-stoat

Speak to another lender - you are taking your £320,000 equity and only using £150,000 for the next property - putting the £170,000 cash somewhere.

Verix

I would have thought that the most likely reason for the decline is the outstanding unsecured debt. Nationwide aren't great with higher debt to income ratios which may be flagging up here. The mortgage holiday may then be compounding the issue. . 

If you are tied in with Nationwide then i feel for you as there may be a hefty repayment charge to fork out, but if you aren't then i wouldn't stress too much. There should still be lenders available to you based on what you've said assuming all the rest of the figures add up.