Mortgage Declined After Agreement in Principle
, by Matt Stevens
An agreement in principle (AIP) is a preliminary decision by lenders which outlines the amount they might be willing to lend and the terms of the potential mortgage. Getting an AIP can be beneficial when hunting for properties, as it gives you a defined idea of your budget.
However, it’s important to note that an AIP does not guarantee mortgage approval. Consequently, it is possible to be refused a mortgage after receiving an AIP.
We’ve put together this guide if you have been declined after an AIP, as well as if you’ve had an AIP rejected. You will learn why this can happen and what steps to take next if your mortgage application encounters obstacles at either stage.
Can a mortgage be declined after an AIP?
Yes, a lender is allowed to decline a mortgage even after granting an agreement in principle. As mentioned, an AIP is not a guarantee of mortgage approval; it is a preliminary assessment.
A mortgage is usually declined after an AIP because the lender discovers additional information during the formal application process, information which was not initially available.
How common are mortgage rejections after an AIP?
Receiving an agreement in principle from a mortgage lender indicates a strong likelihood of obtaining a mortgage offer, but it is not uncommon for deals to fall through after this stage.
Reason being, that some lenders conduct additional checks before granting final approval, which can reveal issues that were not detected during the AIP process. Likewise, if your application is considered complex, the lender may subject it to extra scrutiny by underwriters before giving definitive approval.
Does being declined for an AIP affect your credit score?
No, being declined for an agreement in principle does not impact your credit score. This is because most lenders do not perform a hard credit check when assessing applicants for an AIP, so this will not appear on your credit file.
Having said this, being refused a mortgage can prompt multiple subsequent attempts to secure one, and each application may result in a hard search on your credit report. Hard searches can lower your score and reduce your chances of acceptance.
If you want to get an idea of your current eligibility before you apply, you can use our free credit check tool (£14.99 per month after the free 30-day trial). Using it will help you to detect any potential mistakes or fraudulent activity on your profile, so that you can deal with such problems as soon as possible. The trial and subscription can be cancelled at any time.
Why would your mortgage be declined after an AIP?
Administrative errors
Given the extensive paperwork involved in a mortgage application, administrative errors can occur. These errors could stem from mistakes in filling out forms or from administrative issues on the lender's side. Even a simple mistake can cause a decline at any stage, including after getting an AIP.
Suspected fraud
Lenders can decline an application at any point if they suspect fraud. If the details you provided for the AIP are inconsistent with the information revealed during final checks, the lender may become suspicious, and any indication that you have misrepresented information on your application can lead to rejection.
Change in circumstances
The loan amount in your AIP is based on your declared income. If your income decreases, you may no longer qualify for the mortgage. Similarly, if your expenses significantly increase, or new bad credit information appears on your file after the AIP, the lender might decline your application during their concluding checks.
Change in lender criteria
Lenders frequently update their criteria to stay in line with market conditions and manage risks. If their criteria undergoes changes, they may no longer be able to offer you a mortgage, even if they’ve already given you an AIP. Relatedly, you might not have been aware of all the specific details of their criteria at first, but this has now become a deciding factor.
Credit check issues
Lenders typically review your credit history before issuing an AIP, and again when underwriting your full mortgage application. If fresh problems arise in the second credit check, such as new lines of credit, late payments, defaults, county court judgments, bankruptcy, or payday loans, the lender may reject your application.
Unsuitable deposit source
You must prove the source of your mortgage deposit to ensure it is acceptable to the lender. While personal savings or gifts from parents are generally acceptable, less preferable sources can cause difficulties. For instance, If the lender discovers that your deposit is a loan, comes from gambling, or consists of untraceable cash funds, your mortgage could be declined.
Property is unmortgageable
Property valuation often occurs later in the mortgage process, and if the property's value turns out to be significantly lower than the loan amount, the lender might not offer a mortgage. Lenders need to ensure the property can cover the loan value in case of default. Additionally, if the property has issues like damage or structural concerns, it could be deemed too risky, leading to a mortgage rejection.
What to do if your mortgage is declined after an AIP
Wait Before Reapplying
Jumping into another application immediately can negatively impact your chances of securing a mortgage. As such, take time to understand why your lender declined your application after offering an AIP. Identifying the particular reasons for the decline will help you address any outstanding concerns and improve your chances of future approval.
Improve Your Credit Score
Credit reports that demonstrate careful borrowing and regular repayments tend to result in higher credit scores. While lenders don’t set minimum credit scores, a higher score indicates a more trustworthy borrower and can thereby enhance your overall affordability. This improvement can make you eligible for competitive deals with lower interest rates alongside more flexible terms.
Get Matched with a Mortgage Broker
Mortgage brokers specialise in saving applications that have been held up during or after the AIP stage. They possess the knowledge, expertise, and lender contacts needed to guide you forward, whether with your current lender or a different one offering a deal which is better tailored to your circumstances.
At The Mortgage Genie, our team of expert brokers is dedicated to helping people secure a mortgage, even after they’ve been declined following an AIP. Contact us today at 01915809890 to connect with an experienced professional who understands your financial situation and unique needs. And why not see how much you could borrow up to today by using our mortgage calculator?
