Being refused a mortgage can be extremely worrying and upsetting. If this has happened to you, rest assured that you are not alone and it does not mean that you will not be able to get a mortgage at all. There are myriad reasons why a lender may have refused to lend to you but the good news is that many of these issues can be resolved.
Common reasons why mortgage applications are refused
If your mortgage application has been refused, you should talk to the lender you applied to and ask them to provide you with the reasons your application was rejected. Whilst you may not get a detailed response, the lender is required to provide you with the primary reason your application was declined. The most common reasons mortgages are refused are:
- Low income – lenders can refuse to lend on the basis that they feel that applicants’ incomes are too low and will not support repayments
- Low deposit – the lender may be of the opinion that the amount of deposit an applicant is able to provide is not high enough and can refuse a mortgage application because of this.
- Poor credit rating – a poor credit score could be a reason that a mortgage application is refused. Your credit score could be low for a whole host of reasons such as a history of late bill payments, high levels of debt (for example borrowing on credit cards or overdrafts), any County Court Judgments (CCJs) against you or if you are not on the electoral register.
- Self-employed or contractor – lenders will want to see proof of a steady income and it can sometimes be harder for those who are self-employed or contracting to meet lenders’ criteria. However, if you can provide at least two years’ tax statements and business accounts showing a steady income this should be sufficient. In addition, lenders may also want reassurance that you have work secured for the longer term.
- New arrival – if you have lived in the UK for less than three years, you may find that many lenders are not willing to lend to you. Those that will consider you will require proof that you are entitled to live and work in the UK and evidence of your employment.
What to do if you are unable to get an agreement in principle
An agreement in principle is simply the lender saying that it is potentially able to lend the amount required subject to the additional checks it will carry out at a later stage. However, even at this early stage, the lender will review your income and outgoings, credit score and whether it thinks you can afford the monthly repayments. In addition, all lenders have their own lending criteria that they will score you against when considering whether to give you an agreement in principle. If you are declined an agreement in principle, it is likely that you did not meet the lender’s criteria.
If your mortgage pre-approval is declined, the first thing to do is to try and find out the reasons for the lender’s decision. Knowing why you were refused will make it easier for you to take steps to improve your application and increase your chances of being approved when you re-apply. For example, if you have a poor credit score there are steps that can be taken to improve your score. Or, if the lender is unwilling to lend to you because it feels that the LTV (loan to value) ratio is too high, you can consider whether you are able to increase the deposit amount.
You may also find it useful to contact a mortgage broker to discuss the options available to you. Mortgage brokers have a specialist understanding of the mortgage market and products on offer and will be able to provide you with advice tailored to your individual circumstances. They may also be able to identify which lenders may be more willing to lend to you and what you need to do to improve your application.
What to do if your mortgage application is rejected after having an agreement in principle
It is possible for a lender to decline your formal mortgage application even after it has been pre-approved because it is at this stage that the lender will conduct detailed checks into your circumstances. These checks will include examining your credit history and your employment status. The lender will also take into account the property to want to purchase, the amount you would like to borrow and the deposit you will be providing.
If the lender is not satisfied with the results of this credit assessment it can decline your mortgage application. If your application is declined, it is important to find out why. If you have used a mortgage broker they may be able to identify why the application was declined and discuss this with you. If you did not use a broker, you should speak to the lender concerned and find out what went wrong. Once you know what the problem is you (or your mortgage broker) can find an alternative mortgage broker and take steps to improve your chances of a subsequent application being approved.
Mortgage declined in underwriting
After you have applied for a mortgage, an underwriter will review your application to determine whether you qualify for the loan and whether it is an acceptable risk for the lender to take. If the underwriter is not happy with any aspect of your application or circumstances they can refuse the loan.
Again, the key thing here is to establish the reasons for the rejection and to take steps that address the lender’s concerns.
Appealing a declined mortgage
Although you may be entitled to appeal against a decision to reject your mortgage application it is very unlikely that the decision will be overturned unless you can provide new information that was not available at the time your application was initially reviewed.
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