What Can Stop You From Getting a Mortgage?

Written by Martha Lott Reviewed by Emma Lunn

10th Mar 2021 (Last updated on 13th Feb 2024) 9 minute read

Reasons Why Your Mortgage Application Might Be Declined

Having your mortgage declined is more common than many people think. In 2019, Which? reported that 1 in 6 homeowners have been refused a home loan in the past, with 4 in 10 (41%) being aged between 18-24. The application process and requirements can be confusing, especially if you’re a first-time buyer, and so it’s vital you understand the factors that could affect your lender’s decision.

The most common reasons for mortgage applications being declined include:

• Having a bad credit score - The minimum credit score required to secure a mortgage will vary from lender to lender. However, if you have a bad credit history, County Court Judgements (CCJs) or bankruptcy on your record, it will likely be difficult for you to get accepted.
• No credit history - Minimal credit history is a common reason for mortgage applications being declined. Without a credit history, it can be difficult for your lender to assess whether you’re financially responsible and reliable.
• Being self-employed - Some lenders are wary of lending to self-employed workers who don’t have a regular monthly income. A mortgage broker can help you find a lender which lends to self-employed workers.
• Not being registered on the electoral roll - – Lenders use the electoral roll to check your identity. They also see registration to vote as a sign of stability.
• Buying a ‘non-standard’ property - The type of property you’re purchasing can also affect your mortgage application. For example, high-rise flats, new-build properties, recently renovated homes, studio flats and eco-homes can all be difficult to get a mortgage on.
• Having too much outstanding debt -– You should pay down your debt as much as possible before applying for a mortgage. Large amounts of outstanding debt from loans and credit cards can make lenders reluctant to offer you a mortgage.
• Affordability – Every lender will carry out an affordability assessment when you apply for a mortgage, to see how you manage your income and outgoings.

Other factors such as a recent job change, being on a zero-hour contract, borrowing too much money, previous debt and errors on your application form can also result in you being declined a mortgage. This is why it’s vital you speak to a mortgage broker before deciding on a lender. They can advise you on the best course of action and inform you of any changes you may have to make before being accepted.

What to Do if Your Mortgage is Declined

A mortgage lender will write to you if it turns down your mortgage application – or it will tell your mortgage broker (if you’re using one). Some lenders will explain while you have been rejected, but others may not.

A mortgage broker will be able to give you an idea of which lenders are more likely to accept your application.

Mortgage brokers understand the market and will be familiar with the different lending requirements. They can then match you with an appropriate lender and increase your chances of being approved. They can also discuss the different types of mortgages with you, to see which ones may benefit you the most.

If you were rejected due to errors on your credit report, you should try and get these corrected as soon as possible.

Can Your Mortgage Agreement in Principle Be Declined?

A mortgage agreement in principle or AIP is a written estimate stating how much you may be able to borrow from your mortgage lender. It is not a formal mortgage offer.

Your lender will acquire basic information and perform a credit search to see if you meet its requirements. This will help it come up with a figure which it would ‘in principle’ lend to you. It is not a guarantee or official acceptance of your mortgage application.

You might be turned down for an agreement in principle. However, that doesn’t mean you’ll also be rejected by other lenders. Before you complete another application form, you should find out why you were rejected by the initial lender. Once you’re aware of the reasoning, you can work on correcting the problems or ask a professional for advice.

Can a Mortgage Application Be Declined After Getting a Mortgage in Principle?

As previously stated, a mortgage agreement in principle is not an official offer or guarantee. Your lender will only do a basic search about you at this stage, meaning issues may be uncovered in the future. It is possible that your application will be declined after getting a mortgage in principle.

If you’re declined after getting a mortgage agreement in principle, you should ask why. It’s important to get an explanation for any rejections you may receive as you can then work towards correcting the mistakes before starting the next application.

Mortgage Application Declined by Underwriter

Your mortgage application will normally be sent to an underwriter if your mortgage agreement in principle has been ‘referred’ rather than rejected. Underwriters will look at your situation in more detail and make a decision about lending to you.

If you are declined at this stage, you can appeal the decision. However, it’s rare for an underwriting team to change its mind after a decision has been made.

You could be declined by the underwriting team for a number of reasons, including:

• Failing the lender’s affordability calculations

• An error in the application form

• Missing information in the application

• Unacceptable documents provided

• Concealing a CCJ

• Insufficient income

Can a Mortgage Be Declined After the Valuation?

During the mortgage application process, the lender will organise a valuation of the property you’re purchasing. Depending on the results, this could be another factor that may lead to your application being declined.

Reasons this may occur include the surveyor having down-valued the property or the surveyor may have uncovered concerns about the building’s suitability as security on the loan. Properties that may require a lot of repair work or ones that contain materials that don’t fit with the lending policy could be declined. Leasehold properties may have issues with lease clauses or ground rent.

If the property is down-valued, it means the lender will not lend as much as the mortgage amount applied for. To challenge the valuation, you will need evidence of comparable properties in the same area that supports the price you are paying. It would also be wise to speak to the underwriter involved in the process and to ask your mortgage broker for advice.

Can a Mortgage Be Declined After The Exchange of Contracts?

Although rare, it is possible for a mortgage to fall through after exchanging contracts. This can be very costly, however, as you are now legally agreeing to purchase the home. Signing and exchanging contracts is legally binding and means you are now committed to the transaction. If you are declined during this stage you should contact your lender immediately and ask why.

If you were rejected for failing to disclose information on your application, it’s unlikely that you will be able to apply for another mortgage. When you first complete the application, it’s essential that you answer everything honestly. If your mortgage is declined after the exchange of contracts, you will lose your deposit and possibly face other legal consequences.

If the reason is easily fixable, you might be able to secure another mortgage. A mortgage broker may be able to help you. They can help you find a more suitable lender and help you complete a new application quickly.

How Can You Increase Your Chances of Getting a Mortgage?

A mortgage broker can look at your personal situation and help you find a suitable lender. They will help you through the process of completing the application and ensure you get it right. This will increase the likelihood of you getting accepted and will also ensure you find the best deals for you and your requirements.

However, before talking to a broker, you should:

1. Assess your budget
2. Register on the electoral roll
3. Close inactive bank accounts
4. Review your credit history

By assessing your budget and calculating what you can realistically afford, your mortgage adviser will be able to find a suitable lender and help you work out a realistic deposit. Consider the properties you’re viewing and whether they fit your budget. This will allow you to work out how much you would need to borrow. Don’t forget to include all the costs of buying a house at this stage, including stamp duty.

If you have yet to register to vote, do this before applying. This will make the lender’s identification process easier.

Before preparing your application, close any inactive bank accounts and ensure your bills are paid on time. Take a look at your credit history and see if there are ways you can improve it. Settle any debt you may have if you can afford to - it would be worth contacting a financial adviser should you require help at this stage.

Will Being Declined a Mortgage Affect Your Credit Score?

Having your mortgage application could affect your credit score. The fact a mortgage lender has conducted a ‘hard search’ will appear on your credit report, but the results of that search will not. This report will be reviewed by other lenders when you apply for a different mortgage.

A high number of hard searches in a short amount of time will negatively affect your credit score. If you’re rejected by several lenders and the number of hard searches increases on your report, it may also dissuade future lenders from accepting your next application.

Can You get a Mortgage With a Bad Credit History?

It is possible to get a mortgage with a bad credit history. However, it may complicate the process slightly. Some lenders will offer specific products for those with bad credit. These are called ‘sub prime’ mortgages.

When applying for a mortgage with bad credit, you may have to pay a higher deposit than usual or a higher interest rate. In some cases, you might need a guarantor. There are a variety of guarantor mortgages available, so you should do your research and speak to a professional before deciding.

To increase your chances of obtaining a mortgage, you should try increasing your credit score when possible. You can check your score via a number of free tools and websites including Experian.

Learn More About Mortgages and Deposits

This was part of our mortgages and deposits guide. Next we will take a look at hiring a mortgage broker and whether you really need one. To find out more read do I need a mortgage broker.