Mortgage Declined: What Should My Next Move be?
Having your mortgage application declined shouldn’t spell the end of your dream to own your own home. There are many reasons why your application could have been turned down. In this guide we’ll explain why a lender might have declined your application and what you can do to boost your application.
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Each mortgage lender has their own set of lending criteria which they apply to each individual mortgage application. When you understand the reason your application has been unsuccessful you may be able to rectify the situation, and either find a provider whose lending criteria you fit, or modify your current application.
Read on to find out what to do when your mortgage application is declined.
Why has my mortgage been declined?
There are a number of common reasons why a mortgage application will be denied. Once you know why your mortgage application has been unsuccessful, you can take steps to try and ensure your application will be approved the next time you apply.
Our companion guide — essential things you need to know before applying for a mortgage — could help you understand everything you need to know when applying for a mortgage.
Poor credit history
All mortgage providers assess a borrower’s credit history when processing mortgage applications. A poor credit history is one of the more common reasons that a mortgage application is declined.
You can check your credit report with one of the UK’s three main credit agencies: Experian, Equifax and TransUnion. You may even find there is a mistake in your credit history which is misrepresenting you to lenders.
For information on how to rebuild your credit history read our guide.
Large amounts of debt
Lenders will view borrowers with considerable debts as higher risk. If you have other significant financial commitments on top of a potential mortgage, you may not be able to keep up with repayments. To address this, pay off as much of your debt as you can before reapplying.
Too many credit applications
It is best practice to space out credit applications. It’s commonly accepted that borrowers should leave 12 weeks between credit applications. When too many credit applications are made over a short period, borrowers start to appear desperate for credit and, in the lender's eyes, this could be an indication of poor money management.
Not earning enough
The mortgage provider might come to the conclusion that you don’t earn enough to meet the monthly mortgage repayments for the property you wish to buy.
In this case, your options are to ask for a smaller mortgage, or see if you are eligible for the Government’s first-time buyer schemes, including Help to Buy and shared ownership.
You can find out how large a mortgage you might be able to afford on your salary with our mortgage calculator.
Not registered to vote
Homeowners must be on the electoral roll. This is quite an easy issue to address; you can register online and the registration process will only take around five minutes.
Each lender will require you to reach a certain loan-to-value ratio (LTV). If your deposit is too small for one lender, it may be just right for another. Alternatively, learn how to save for a deposit and see if you can put down a greater sum to reduce your LTV ratio.
You can’t prove your income
Whether you are a freelancer, self-employed, or you don’t work a typical 9-5 job, it can sometimes be hard to prove your income when it comes from multiple different streams. If this is the case, you can search for specialist self-employed mortgages.
Previously taking out a payday loan should not prevent you from getting a mortgage. However, payday loans will remain on your credit file for six years and some lenders look extremely unfavourably on them, seeing them as a sign that you have experienced financial difficulties. Other lenders will take your payday loan into context with your current financial situation.
What support is available when my mortgage application is declined?
If your mortgage application has been declined and you’re unsure why, a mortgage broker or independent financial advisor with experience dealing with a wide range of lenders should be able to offer advice and guidance.
They will be able to identify what different lenders require and can represent you in talks with lenders.
Why has my mortgage been declined by the underwriter?
An underwriter assesses the risk your mortgage application presents to the lender. Before your lender approves your mortgage they will send your application to their underwriting department.
They could reject a mortgage applicant for the following reasons:
- Credit history – they spot something in your credit history that shows negative financial stability or your overall score is too low
- Risk – the level of risk you represent may have been assessed to be too great
- Affordability – they believe that you cannot afford the repayments
- Application error – if you omitted certain information or made an error on your application you could be turned down
- Documents – the documents you included are not acceptable
- Income – some forms of income aren’t accepted by certain providers
Why was my mortgage in principle agreed and then declined?
The agreement in principle (AIP) is the first step to getting a mortgage.
A mortgage provider will let you know how much they will be willing to lend to you if you pass their affordability assessment. This allows you to look for the home of your dreams. You can find out how much you might be able to borrow with a mortgage in our guide.
Getting turned down after your AIP could mean you’ve found the home of your dreams and gone through with a full mortgage application only to fall at the final hurdle, with the finish line in sight.
This can be pretty dispiriting, but your race is not run yet. Rejection from one mortgage provider doesn’t mean you’re automatically ineligible to apply or be accepted for other lenders’ mortgage products. But you must identify what caused your application to be declined. Making multiple applications will, in itself, cause a detrimental affect on your credit profile.
The main reasons you could have your mortgage application denied despite being approved for an AIP are listed below.
- Changing jobs – this may change the amount you earn each month and providers may not be willing to lend the same amount to you, or be able to offer you the same rate. It could also make lenders question if it is a reliable source of a consistent income.
- Credit – taking out a new form of credit before your application is complete could derail your application as it could bring your affordability into question
- Change in your situation – a recent change in circumstances could mean you no longer meet lender criteria
- Missed payments – any that come after the AIP could be particularly damaging
- Application discrepancies – mistakes or inconsistencies in your application can lead to rejection
- Credit file – your provider might find new information from a different credit agency
Why was my mortgage declined on affordability?
Your mortgage application may be declined on affordability grounds for a few reasons, even if you think you can afford repayments. This comes down to a mortgage provider’s stance on different forms of income.
If your job includes commission payments additional to your base salary, depending on the lender, some will include it in your affordability assessment while others won’t. Some lenders will only count 50% of your commission payments, and some won’t include it at all due to its unreliable nature.
If you’re self-employed, your income comes from multiple streams, or is alternative in any way, you may need to speak to a mortgage broker who can inform you of the lenders most likely to accept your income.
What happens if my mortgage offer expires before my sale is completed?
Because mortgage offers are typically valid for six months, there are occasions when they can expire before your completion is finalised. If your completion takes longer than six months, if your lender will not extend the offer, then you’ll need to reapply for your mortgage.
This is quite rare and applies mainly to new build properties where construction delays cause issues. If you are looking to buy a new build, here’s what to consider when taking out a mortgage on a new build property.
What impact does being declined have on my credit score?
Being declined for a mortgage won’t in itself damage your credit score, as your credit file doesn’t show whether your application was approved or not.. However, whenever you apply for a mortgage, a lender will perform a hard credit check on your report and this will leave a mark visible to other lenders.
If a mortgage provider sees too many hard credit checks on your file over a short period, your credit score will drop, and they may consider you a risky borrower and refuse to lend to you. So, if you have been declined for a mortgage, take some time to improve your financial profile before applying again.
How can I make myself more attractive to mortgage lenders?
In just a few steps you can make your application more appealing to lenders:
- Fix issues in your credit file
- Register to vote
- Ensure your finances are stable
- Remain in the same job
- Save a large deposit
- Have the correct documents and paperwork available
- Ensure financial history is declared
There’s no need to let a failed mortgage application dampen your enthusiasm for getting on to the property ladder in the future as a first-time buyer, or stay on if you’re choosing to remortgage to a better deal.
John Ellmore is a director of NerdWallet UK and is a company spokesperson for consumer finance issues. John is committed to providing clear, accurate and transparent financial information. Read more