Declined a Mortgage? Don’t Panic! Here’s What to Do Next

Did you know that nearly one in five mortgage applications in the UK gets declined? If you’ve recently faced a mortgage rejection, you’re far from alone. But don’t pack away your dreams of homeownership just yet; there are actionable steps you can take to turn things around.

Buying a property can be an exciting time, but it requires a lot of work and effort so it can be extremely disappointing to be told your mortgage application has been declined. There are several stages when your mortgage application can be declined. The best approach is to work out why it was rejected and use that information to improve your chances of being accepted the next time.

In this article, we discuss why an application might be rejected and what you can do. We will also explore the frequently asked questions around the topic.

Post Topics

Stages at which a mortgage application can be declined

Common reasons for being declined a mortgage

How to increase your chances with your next application

Next steps

What is meant by term mortgage decline?

A mortgage decline is when a lender decides not to approve a borrower’s application for a mortgage. It can occur at any point in the application process, from pre-qualification all the way through to the closing. A mortgage decline could be due to any number of factors, including poor credit scores, insufficient income or assets, lack of documentation, or other reasons. Rejected applicants may be asked to provide additional information or take other steps to improve their chances of being approved the next time.

Stages at which a mortgage application can be declined

Mortgage applications can be declined at any stage of the process, from pre-qualification through to closing. Pre-qualification is the preliminary step in which a borrower provides basic information such as income and credit score to determine their eligibility for a loan. If this initial assessment results in a rejection, it usually means that the borrower does not meet the lender’s minimum standards. Applications also may be declined at the underwriting stage, when a lender reviews an applicant’s financial information more closely. This could happen if the borrower is unable to provide sufficient documentation or has insufficient funds for the loan. Finally, applications can be declined at the closing stage if a borrower fails to meet other requirements set out by the lender.

Before a mortgage application – you may have already approached a high street or broker who has told you that you won’t qualify for a mortgage loan. 

There are several stages at which a mortgage application can be declined. Here is a brief overview:

• Before you apply: If you have a poor credit history, too much debt, or cannot afford the monthly repayments, a lender may refuse to offer you a mortgage even before you apply.
• After an agreement in principle (AIP): An AIP is not a guarantee that your mortgage will be approved, but it does give you an indication of how much you can borrow. Lenders will make an initial decision based on the information you have provided, but they may decline your application at a later stage if they find any problems.
• During underwriting: Before a lender can approve a mortgage, your application will need to be underwritten. This means that the lender will check your credit history, income, and expenses in more detail to assess your risk. If the underwriter decides that you are too risky, they may decline your application.
• After a valuation: Lenders may also decline a mortgage application if they have concerns about the property itself. For example, if the property is in a poor state of repair or is valued lower than the purchase price, the lender may decide that it is not a good investment.
• After exchange of contractsThe point at which the buyer and seller exchange signed cont...: Although rare, it is possible for a mortgage application to be declined after the exchange of contracts. This could happen if the lender finds any new information that makes them reconsider their decision.

If your mortgage application is declined, it is important to understand why this has happened. You can then take steps to improve your chances of being approved in the future. For example, you may need to improve your credit history, reduce your debt, or increase your deposit. You may also want to speak to a mortgage broker who can help you find a lender that is more likely to approve your application.

Common reasons for being declined a mortgage

There are a number of reasons why a mortgage application may be declined. Some of the most common include:

• Poor credit history: Lenders will check your credit history to assess your risk as a borrower. If you have a poor credit history due to things like late payments, defaultsMissed payments on credit accounts, which can affect a borro..., or CCJs, your application is more likely to be declined.
• Too much debt: If you have a lot of outstanding debt, lenders may be concerned that you will not be able to afford the monthly mortgage repayments.
• Low deposit: A deposit of at least 10% is typically required to secure a mortgage. If you have a smaller deposit, your application may be declined, or you may be offered a mortgage with a higher interest rate.
• Job stability: Lenders will consider your employment status and income when assessing your mortgage application. If you are self-employed or have a zero-hour contract, your application may be declined, or you may be offered a mortgage with a lower loan amount.
• Incorrect information: If you provide incorrect or conflicting information on your mortgage application, your application may be declined. It is important to check your application carefully before submitting it.

 How to increase your chances with your next application

Each lender’s criteria and requirements for a mortgage application will vary from lender to lender. There are numerous lenders on and off the high street and specialist lenders which you may not have access to, so seeking professional advice from a mortgage advisor can help direct you to lenders and deals suitable for your own personal circumstances.

Lenders and their underwriters base their decision on how risky of a borrower they deem you to be from the information they are provided, so there are certain steps you can take to enhance your application:

• Register on the electoral roll. This will help lenders to confirm your identity and address.
• Check your credit score. It is a good idea to regularly check your credit report so that you can identify any errors and improve your score if necessary. Even if you have a poor credit history, you may still be able to get a mortgage, but it will depend on the lender, your individual circumstances, and the severity of your adverse credit.
• Save for a bigger deposit. A larger deposit will make you more attractive to lenders and can give you access to better interest rates.
• Prove that you can afford the monthly mortgage payments. Lenders will assess your income and expenses to make sure that you can afford the monthly repayments.
• Clear any debts that you owe. The less debt you have, the more likely you are to be approved for a mortgage.

Here are some additional tips:

• Be honest and accurate on your mortgage application.
• Get help from a mortgage broker if needed. Mortgage brokers can help you to find the best mortgage deal for your individual circumstances and can support you through the application process.

Next steps

If you have had a declined mortgage application, you might be tempted to apply again with another bank quickly, but this might be a bad move as too many declined applications can decrease your chances further of being accepted and negatively affect your credit score. Getting in touch with a professional adviser who can examine why you were rejected the first time can help strengthen your next mortgage application.

FAQs

Q1: Why have I been refused a mortgage?

A1: You could be refused a mortgage for various reasons such as a poor credit history, too much outstanding debt, low deposit, or job instability. Lenders assess these factors to determine your risk as a mortgage applicant.

Q2: Does being declined a mortgage affect my credit score?

A2: Yes, being declined for a mortgage can have a negative impact on your credit score. Multiple declined applications can further decrease your chances of approval in the future.

Q3: What should I do after I’ve been refused a mortgage?

A3: After a mortgage decline, it’s essential to find out the specific reason for the rejection. You may need to improve your credit score, reduce your debt, or consult an experienced mortgage broker for expert advice on how to enhance your application.

Q4: Can you get a mortgage with bad credit?

A4: While having a bad credit history makes it more challenging, it’s not impossible. Some specialist mortgage brokers and alternative lenders may offer you a mortgage deal, albeit likely at a higher interest rate.

Q5: What are the common reasons for mortgage applications being declined?

A5: Common reasons include poor credit history, high levels of debt, low deposit, job instability, and providing incorrect information on the application form.

Q6: Where can I go for help if my mortgage application is declined?

A6: If your mortgage application is declined, seeking professional advice from an experienced mortgage broker can be beneficial. They can guide you to suitable deals and help improve your chances of approval.

Q7: How can I challenge a down valuation?

A7: If you disagree with a property valuation, you can challenge it by providing evidence of similar property sales in the area or getting a second opinion from another valuer.

Q8: What happens if my mortgage application is declined?

A8: If your application is declined, you should first understand the reason behind the rejection. Then, take steps like improving your credit score or seeking expert guidance to improve your future applications.

Q9: Why might you be turned down after having a Mortgage Agreement in Principle accepted?

A9: An Agreement in Principle is not a guarantee. You could still be turned down during the underwriting process if the lender finds issues like discrepancies in your application form or affordability issues.

Q10: What can you do if you’ve had a mortgage application turned down?

A10: If your application has been turned down, consult a mortgage advisor to understand why it happened. Then, take steps to improve your credit score, reduce debt, or save for a larger deposit before reapplying.

Q11: How long should I wait before applying for a mortgage again?

A11: There’s no set time, but it’s advisable to resolve the issues that led to your initial decline before reapplying. Multiple rejections can harm your credit score.

Q12: What impact does being declined have on my credit score?

A12: A declined mortgage application can negatively affect your credit score, especially if you make multiple unsuccessful applications in a short period.

Q13: How can I make myself more attractive to mortgage lenders?

A13: Improving your credit score, reducing outstanding debt, and saving for a larger deposit can make you more appealing to mortgage lenders.

Q14: Can a mortgage be declined after the valuation fee has been paid?

A14: Yes, a mortgage can still be declined after the valuation fee has been paid, especially if the property is valued lower than the purchase price or is in poor condition.

Q15: What should I do if my mortgage offer expires before my sale is completed?

A15: If your mortgage offer expires before completing the sale, contact your mortgage provider immediately. You may need to go through some parts of the application process again or seek an extension.