Mortgage Declined: What To Do Next
, by Matt Stevens
If your mortgage application has been declined, it's normal to feel disappointed and frustrated. However, it's important to know that you're not alone - rejections are quite common. Just because one lender didn't find you suitable doesn't mean there aren't others who will.
With the right guidance, you can get back on track towards homeownership. In this piece, we outline what steps you should take next after facing a mortgage application decline.
Why would a mortgage be declined?
Lenders follow varying criteria and consider numerous factors when evaluating mortgage applications. While there can be several reasons for a declined application, the most common ones include:
1. Poor credit history: This is often a primary reason for mortgage rejections. Lenders assess your credit score, which reflects your overall financial health, to gauge your repayment capability.
2. Not registered to vote: Lenders use the electoral roll to verify your identity and address, registering your details is one of the easiest ways to improve your chances of approval.
3. High debt levels: Excessive outstanding debt signals financial strain to lenders, making mortgage approval challenging. It's highly advisable to reduce your debt burden before applying for a mortgage.
4. Multiple credit applications: Each credit application triggers a check on your credit report, potentially affecting your credit score. Too many applications may suggest financial instability to lenders.
5. Affordability concerns: Lenders might doubt your ability to afford mortgage repayments, prompting a rejection. If faced with this situation, consider reevaluating your financial situation.
6. Self-employment or contract work: Self-employed individuals and contract workers may encounter difficulties due to perceived income volatility. Albeit, specialised mortgage options do exist for these borrower types.
7. Low deposit: Lenders assess the loan-to-value ratio, and a small deposit might result in rejection if it exceeds their criteria. Saving for a larger deposit or exploring alternative mortgage options could prove beneficial in this instance.
8. Errors or omissions: Mistakes in your credit report or missing information in your application can lead to a declined mortgage. Regularly review your credit report for inaccuracies and ensure all relevant details are included in your application.
Mortgage declined after agreement in principle
Obtaining a mortgage agreement in principle doesn't ensure final mortgage approval. If you're declined for a mortgage after receiving an agreement in principle, it typically indicates that upon conducting a comprehensive assessment of your information, the lender identified aspects that didn't align with their lending criteria.
Mortgage declined by underwriter
When applying for a mortgage, your application undergoes assessment by the lender's underwriting team before approval and loan disbursement. This evaluation involves gauging your level of risk and determining whether it aligns with the lender's tolerance.
If your application fails to meet the lender's criteria or if the underwriter uncovers unfavourable credit history, such as payday loans, CCJs, or bankruptcy, your application may be declined.
Mortgage declined after valuation
If your lender determines that the property you intend to purchase is valued lower than the amount of the mortgage you're seeking, they may propose increasing your deposit to align with the valuation. Alternatively, they might opt to decline your application altogether.
Challenging a down valuation can be difficult unless there are comparable properties supporting your purchase price. A down valuation results in reduced lending, potentially rendering the desired property financially unattainable.
Mortgage declined after exchange of contracts
While rare, if your mortgage application is declined at this stage and the sale falls through, you risk losing your deposit. It's imperative to promptly secure a new mortgage offer because once contracts are exchanged, you are legally bound to purchase the property.
If your application is rejected due to undisclosed information, such as false details on your application form, you may have to accept the financial consequences. As such, utmost accuracy and honesty on your application are vital in order to avoid such pitfalls.
What to do next if you get declined for a mortgage
Wait before reapplying
While the urge to seek out another lender immediately is understandable, rushing into a new application can exacerbate the situation. Reapplying hastily might further damage your credit report. There's no guarantee of success with a different lender, so it's advisable to pause and strategise.
Find out why you were refused
If you haven't already, inquire with the lender about the reasons for your application's rejection. Additionally, scrutinise your credit history to identify any factors that may have deterred the lender.
Using our free credit check tool (with a £14.99 per month subscription after the free 30-day trial) can help uncover potential errors or fraudulent activities promptly. You can cancel the trial and subscription at any time.
Make yourself appealing to lenders
Demonstrate to mortgage providers that you're a reliable and responsible borrower by consistently making timely and full payments for your regular expenses, such as credit cards, mobile phone contracts, and utility bills. Likewise, consider paying off existing debts if feasible and reducing your credit utilisation.
Manage your finances wisely
If affordability was a concern for the lender, think of avenues to stretch your finances further. This could involve increasing your monthly income or reducing your living expenses. Boosting your deposit amount can also decrease the loan amount required. On this point, it’s worth exploring saving strategies and government schemes like shared ownership.
Apply with attention-to-detail
Avoid crucial mistakes on your application form by diligently filling it out. Take the time to provide accurate information instead of guessing responses to questions such as tenure at your current residence or your partner's income. Ensure consistency between the address provided and the one on your credit report.
Speak to an expert mortgage broker
When facing mortgage rejection, it's integral to partner with a mortgage broker who specialises in securing approvals after setbacks. These experts possess the skills and connections necessary to regain control of your plans.
At The Mortgage Genie, we're dedicated to assisting individuals who have faced mortgage rejections. Our team comprises expert mortgage brokers with extensive experience in overcoming obstacles such as those we’ve discussed throughout.
We have established strong relationships with lenders known for their flexibility in approving complex cases. Give us a call at 01915809890, and we'll match you with a professional tailored to your specific circumstances. And why not see how much you could borrow up to today by using our mortgage calculator?
