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What Can Stop You From Getting a Mortgage?

Zenyx Griffiths

Written by

10th Mar 2021 (Last updated on 8th Apr 2021) 12 minute read

If you don’t fit their lending criteria, it’s possible that your bank or building society could reject your mortgage application. The application will be assessed against your lender’s requirements to determine if you are fit to lend to. If you are declined, you did not meet this list of requirements.

Every lender will assess their mortgage applications differently. Whilst some may require 3-month bank statements, others may only require 1-months. Some lenders will require you to be in your current job for over a year, others won’t. However, no matter what the requirements, if your application is declined, it doesn’t mean you’re out of options.      

Compare My Move work with experienced finance and property experts to ensure you’re provided with accurate and insightful guides that can help you through the moving process. In this article, we will discuss what factors can stop you from getting a mortgage and how you can prepare for the application process to reduce your chances of being declined.

This article will cover the following:
  1. Reasons Why Your Mortgage Application Might Be Declined
  2. What to Do if Your Mortgage is Declined
  3. Can Your Mortgage Agreement in Principle Be Declined?
  4. Can a Mortgage Application Be Declined After Getting a Mortgage in Principle?
  5. Mortgage Application Declined by Underwriter
  6. Can a Mortgage Be Declined After the Valuation?
  7. Can a Mortgage Be Declined After The Exchange of Contracts?
  8. How Can You Increase Your Chances of Getting a Mortgage?
  9. Will Being Declined a Mortgage Affect Your Credit Score?
  10. Can You get a Mortgage With a Bad Credit History?
  11. Learn More About Mortgages and Deposits

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 depending on the lender you choose. However, if you have a bad credit history, a 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 prove you’re financially responsible and reliable. 
  • Being self-employed - Some lenders are wary of lending to self-employed workers as it doesn’t always mean a regular payslip. This can make it difficult for some self-employed workers to keep up with repayments. One solution would be to use a mortgage broker to help you find a lender who offers self-employed mortgages. 
  • Not being registered on the electoral roll - As lenders will need to confirm your identity quickly, being registered on the electoral roll is an essential factor. If you’re not registered, it can be difficult for the lender to verify who you are and where you live, resulting in additional identification checks. 
  • 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 - It’s vital you 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 grant you a mortgage. It questions whether you’re financially responsible and able to afford the monthly mortgage repayments. 
  • Affordability - The lender’s personal calculations may question whether you will be able to afford the monthly repayments. This is why it’s essential you don’t borrow more than you can realistically afford.

Other factors such as a recent job change, working 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. 

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What to Do if Your Mortgage is Declined

You’ll know if your mortgage application has been declined if you receive a declination letter from your lender - this is also known as an ‘adverse action letter’. This letter should also contain instructions for how to get a copy of your credit report as you will legally be entitled to receive one should you be declined. 

Lenders are typically required to explain why you have been rejected but not all of them will. The declination letter should state this, but if for some reason it is unclear or missing, you should contact your lender directly and ask. Reviewing your credit report should also help you understand their reasoning. 

Once you know why your mortgage application has been declined, you can seek help from a mortgage broker. They should be able to assess your application and further uncover why you didn’t meet the criteria. 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 even discuss the different types of mortgages with you, to see which ones may benefit you the most. 

If you were rejected for reasons you can correct, such as errors or a bad credit score, it’s vital you work towards remedying these issues as soon as possible. If you require further aid, you could also contact an independent financial adviser.

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’s important to note that it is not a formal mortgage offer.

Your lender will acquire basic information and perform a credit search to see if you meet their requirements. This will then help them create an average figure which would ‘in principle’ dictate how much you would be able to lend. It is not a guarantee or official acceptance of your mortgage application. 

It is possible to be rejected at this stage of the process. However, that doesn’t mean you’ll be rejected by other lenders also. Before you complete another application form, it would be wise to understand why you were rejected by this specific lender. Once you’re aware of their 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 certainly possible for your application to be declined after getting a mortgage in principle. 

If you’re rejected at this stage, it’s highly likely that the lender uncovered something that meant you no longer meet their criteria. These issues will be discovered when they complete their full search of information on you.  

Again, if you’re declined after obtaining a mortgage agreement in principle, it’s vital you ask why that is. It’s always 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.

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Mortgage Application Declined by Underwriter

Your mortgage application will typically be sent to an underwriter if your mortgage agreement in principle has been ‘referred’ rather than rejected. 

Before your lender can approve your application and determine if they can lend you the money to buy a house, the application will first go to their underwriting team. They will assess you as a potential homeowner and determine whether it would be risky for the lender to take you on. 

If you are declined at this stage, you can appeal the decision. However, it’s rare for an underwriting team to change their mind after the decision has been made. Again, speaking to a mortgage broker would be the best course of action should you be rejected.  

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

  • Failing their affordability calculations
  • An error in the application form 
  • Missing information in the application
  • Unacceptable documents provided 
  • Concealing a CCJ
  • Unacceptable 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. If your application is rejected due to the construction materials, don’t be too disappointed as other lenders may be perfectly fine lending on a property such as the one you’d like to purchase. 

However, down-valuations can not always be resolved so simply. If the property is down-valued, it means the lender will not lend as much as the asking price depicts and could mean the property becomes unaffordable. To combat the valuation, you will require 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 very 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 for the reasoning behind this decision. 

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 disclose everything, even if you believe it may lower your chances of being accepted. 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. No matter what the reasoning, it’s advised you speak to a mortgage broker immediately so you know which steps to take next. They can help you find a more suitable lender and aid you in the new application process so ensure no time is wasted.

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How Can You Increase Your Chances of Getting a Mortgage?

The best advice that will help you increase your chances of getting a mortgage is to speak to a mortgage broker. A professional mortgage broker can assess your personal situation and aid you in finding a suitable lender. They will help you through the complicated 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 that meeting, you should:

  1. Assess your personal 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 personal 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, that would also be an essential task to complete before applying. This will make the lender’s identification process much easier and ensure you’re a real and potentially reliable candidate. 

Before preparing the application, try to close any inactive bank accounts and ensure every bill is 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 rejected should not hurt your credit score. 

However, the fact a mortgage lender has conducted a search will appear on your credit report, but the results of that search will not. This report will be reviewed by other lenders should you reapply for a mortgage.  

The search conducted by mortgage lenders is often known as a ‘hard search’. A high number of hard searches will affect your credit score, potentially lowering it. If you’re rejected by numerous 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, so it’s worth speaking to a mortgage broker or financial adviser and shopping around before applying. 

When applying for a mortgage with bad credit, you may have to pay a higher deposit than usual or you may even require a guarantor. There are a variety of guarantor mortgages available, so it would be wise to 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 in our series, we take a look at gifted mortgage deposits and everything you need to know. To find out more read what is a gifted mortgage deposit.

Disclaimer

All data, research, facts and figures have been taken from reputable sources and government data that was accurate at the time of writing. Mortgage criteria, interest rates and policies change regularly and vary depending on the lender and type of mortgage you have. You should speak directly to your mortgage lender for clarification. It should be noted that your home may be repossessed if you cannot keep up with your mortgage payments.
Zenyx Griffiths

Before Compare My Move, Zenyx once wrote lifestyle and entertainment articles for the online magazine, Society19 as well as news articles for Ffotogallery.