Has your mortgage application been refused? If so, don’t panic. By understanding why you got rejected, you can take steps to increase your chances of getting approved the next time around.
Being refused for a mortgage doesn’t necessarily mean the end of your dream of buying a home. If you don’t meet a lender’s loan criteria, that doesn’t necessarily mean all lenders will say no.
Read this guide to help you understand why your application may have been refused and what you can do to increase your chances of success the next time around.
Why was my mortgage application refused?
Your mortgage application may be refused because:
your personal situation did not meet the lender’s criteria
the lender was not happy with the property you are buying
But each lender will have different criteria – so a rejection from one lender doesn’t necessarily mean you will be refused elsewhere as well.
Why would I be turned down for a mortgage?
A mortgage lender can refuse your mortgage application if you:
Why would a particular property be turned down for a mortgage?
A mortgage lender can deny an application for a particular property because the property:
has a short-term lease (if lease)
it is not proven to be fireproof
is an apartment in a high-rise building
is constructed from unconventional materials
has been undervalued by the lender evaluator
is not habitable
What should I do if my mortgage application has been refused?
The first thing to do if your mortgage application has been denied is to find out why.
Knowledge is power – knowing what went wrong will give you the opportunity to make things right.
In many cases, you may be able to successfully apply to another lender.
Mortgage declined due to affordability
Affordability assessments differ from lender to lender. Some will include bonus payouts or commissions, while others will not.
Since 2014, mortgage lenders have had to carry out much stricter controls over the affordability of a mortgage loan.
In addition to looking at your income, a lender will look at your expenses when evaluating your application. It will ask you for 3 to 6 months of payslips to see what you are spending your money on.
In addition to looking at household bills, debt repayments, child care expenses, and other financial commitments, the affordability assessment will look at your discretionary spending. To increase your chances of getting approved for a mortgage, you need to cut back on things like vacations, dating, online gambling, and dining out.
If you have multiple sources of income or if you self employed, a mortgage broker will know which lenders are the best to approach.
In some cases, you may need to make a larger down payment to pay off the mortgage.
Mortgage declined due to bad credit
There are several steps you can take to improve your credit rating.
For example, you can pay off debts, close unused lines of credit, pay bills on time, correct errors in your credit report, and make sure you’re on the voters list.
You can check your credit rating and credit history with any of the three UK credit reference agencies. They are:
You can ask the credit reference agencies to correct any errors in your credit report.
A broker can suggest lenders who lend to borrowers with poor credit.
The mortgage went down because of too much debt
Your mortgage application may be refused if you have too much debt.
Before you apply for a mortgage, try to pay off your loans and credit cards, and avoid dipping into your overdraft if you can afford it.
The use of payday loans, in particular, could result in the denial of your mortgage application.
Payday loans are a type of high cost short term credit. Any payday loan you have had in the past 6 years will be on your credit report, even if you paid it off on time.
Lenders dislike payday loans because their use suggests financial hardship or desperation to borrow money.
Mortgage refused because you are self-employed
Self-employed borrowers will need to prove their income to the mortgage lender.
To do this, you normally need at least the accounts from the last 2 years – but the more years you have of accounts showing decent profit, the better.
You will also need to submit the SA302 forms and a “tax overview” from HMRC for the past 1 to 3 years (depending on the lender).
A mortgage broker will be able to suggest lenders who favor the demands of self-employed workers and the required documentation.
Mortgage declined due to a problem with the property
Each lender will have different criteria on the types of property considered adequate collateral for a loan.
If you’re buying an apartment, leasehold, or property built from unconventional materials, a broker can tell you which lenders are most likely to accept your request.
If the property is not habitable, you may be able to get a home improvement mortgage to borrow money to make the property habitable.
Can a mortgage be refused after an agreement in principle?
a agreement in principle is a guide to how much a lender would be willing to lend you based on some basic information and a gentle research of your credit report.
But this is not a guarantee. When a lender does a more in-depth affordability assessment or research your credit report, they may decide not to lend you.
Assessing a lender’s affordability can reveal high financial expenses or liabilities such as child care expenses, financing a car, or paying down debt.
A thorough search of your credit report can reveal missed payments on debts or bills, too many credit applications in a short period of time, or high usage of existing lines of credit.
Can a mortgage be refused by an insurer after an appraisal?
An insurer can refuse your mortgage application after a Evaluation because:
the underwriter thinks the property is not worth the purchase price
property valuation means your loan is over the limit ready to value permit
there are doubts about the suitability of the property for a loan
the property needs repairs
If your request is denied after an assessment, you can try:
renegotiate the purchase price with the seller
deposit a larger deposit
try another lender
Can a mortgage be refused after exchange of contracts?
It’s unusual for a mortgage to be turned down after an offer or after you’ve traded contracts.
However, this can happen if:
the lender discovers something that you failed to disclose on your application
you lose your job or your situation changes
the lender suspects that you are involved in a crime or fraud
you do not complete the purchase before the mortgage offer expires
Your mortgage being rejected after swapping contracts can get very expensive. This is because you are legally bound to buy the property at this point and you will lose your deposit if you do not complete the purchase.
How long do I have to wait to reapply if my mortgage is declined?
Although you can apply for another mortgage immediately after being turned down, it is generally advisable to wait at least 3 months.
You can use this time to find out why your application was declined and take steps to put yourself in a better position for the next time you apply.
Too many refused mortgages will affect your credit score.
A mortgage broker will be able to tell you when to reapply and to which lender.