Mortgage Declined - What To Do Next?

Last updated: March 2021 | 4 min read

It will certainly not be good news if your mortgage has been declined. But it is not the end of the world. In this article, we will take a look at common reasons why mortgages get declined and ways you can improve your chances of securing another mortgage.

Why was the mortgage refused?

If you do not meet the mortgage lender's criteria, the lender will decline your mortgage. However, every lender has different criteria on which they assess the application. For instance, some may give you a mortgage only if you have been in your current job for over a year, whereas others may not have this requirement.

Therefore, it is essential to assess which criteria you did not meet. You can work on those issues and try with a different mortgage lender whose criteria you can meet. Using a mortgage broker can be particularly helpful in this case as a good broker will be familiar with the products in the market and guide you to a lender whose criteria you able to match.

What are the common reasons for declined mortgage applications?

  • Poor credit history – You should check your credit reports. Click here if you want to know how to improve your credit rating.
  • Not on the electoral polls – If you are not registered to vote, then lenders may decline your mortgage application.
  • Debt – Too much debt can be a cause of why your mortgage application may get declined.
  • Credit checks – If there have been multiple "hard searches" ran on your credit history, they will appear on your credit report. Mortgage lenders may assume that you are having trouble getting your mortgage application accepted or have debt problems.
  • Small deposit – If your deposit is small, it will affect your loan to value ratio leading to your mortgage application being declined.
  • Mistakes in application – mistakes in mortgage application can prove costly. Your application may even be rejected.

What should you do if your mortgage application has been declined?

You need to figure out why your mortgage application was declined. It would be best if you worked on the issues before you go out to apply for another mortgage. A good mortgage broker who knows the market will be aware of various lenders' lending criteria and guide you towards the lender who is more likely to accept your mortgage application.

A mortgage in principle declined

A Mortgage Agreement in Principle (also called decision in principle or mortgage in principle) is a document provided by mortgage lenders after giving them your basic information about your finances and a credit check. It will give a figure the mortgage lender would 'in principle' lend you. However, you should be aware that this does not guarantee that you will get a mortgage offer.

Therefore, if you are rejected at this stage, it does not mean that another lender will reject you. However, you should first find out why your application was rejected so that you can improve your chances of securing the next mortgage in principle.

Mortgage declined in spite of mortgage in principle

A mortgage in principle is not a guarantee that your mortgage application will be accepted. If your mortgage application is rejected even though you had a mortgage in principle, it probably means that when the lender did a thorough search, they found something which did not meet their criteria.

You should speak to the lender and ask why your application was rejected. You should correct the problems before you apply for another mortgage.

Mortgage declined by underwriter

A team of underwriters assesses your application. They assess whether you are a risky person to lend to. They can reject your application on the following reasons:

  • Credit history – if you tried to conceal a county court judgment against you and the underwriter find out, your application will most certainly be rejected.
  • You did not meet the affordability criteria.
  • Missing information on your application.
  • Income – Every mortgage lender will have their own criterion of what counts as income. If you have put forward an income to support your application which is not acceptable to the lender, your mortgage application will be declined.
  • Risk – If the underwriter finds that you are a high-risk borrower, your mortgage application will be rejected.

If the underwriter has declined your mortgage application, you can appeal the decision. However, it is unlikely that the underwriter will change their decision.

Mortgage declined due to affordability

If your mortgage application has been declined on affordability, it does not necessarily mean you cannot afford the mortgage. This is because each lender will have their own criteria of what counts as income. Some may take into account bonuses and overtime, whereas others may not.

Mortgage declined after valuation

Your mortgage lender will get a valuation carried out on the property you want to buy. Your application can be rejected as a result of this valuation.

The surveyor may have under-valued the property. Additionally, the surveyor could have reported concerns about the property's suitability as security for the loan due to construction materials not meeting the lending policy or if the property requires repair.

Mortgage declined after exchange of contracts

Although it is very rare for a mortgage to fall through after you have exchanged contracts if it does, it can be very costly. Since you will be legally bound to complete the sale and if you cannot, you face losing your deposit and other penalties.

You should figure out what went wrong. You would not be able to get another mortgage if you did not disclose the complete information on your application.

If the reason is more fixable, for instance, if your finances changed, you only need to find another lender whose criteria you meet.

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