Last reviewed on 23rd November 2023 by Martin Alexander (Mortgage Advisor)
Having your mortgage declined can be frustrating, and it usually leads to worry and panic. We’ll be the first to tell you not to worry, as we deal with many enquiries about rejected mortgage applications. That being said, it’s important that you don’t start applying to other lenders before speaking to an advisor, as each application can show on your credit file.
Statistics from several mortgage bodies show that around 10% of all mortgage applications are declined each year. The main reason is that applicants apply with lenders that aren’t suitable.
We’ve put this guide together to explain everything you need to know about mortgage applications that have been declined and what to do next.
Why have I been refused a mortgage?
A lender likely refused you a mortgage because you didn’t entirely meet their criteria. Each lender has different criteria, so while one lender might decline you, another may accept you.
We’ve outlined the main factors of why lenders reject applications.
Bad credit history
Having bad credit is a common reason why lenders refuse mortgages. Each lender will carry out a credit check, and while some accept credit issues, not all do.
If you’ve been refused because of your credit, you’ll need to find a lender that accepts the problems on your credit file. You can do this by speaking to an advisor who knows what lenders will and won’t accept.
You don’t earn enough
You can typically borrow between three and five times your income. If you’ve applied for a mortgage larger than this, you’ll likely be declined. You can ask your lender for a smaller mortgage if you’ve been refused because of your income.
Lenders carry out affordability tests to ensure your income can pay your mortgage. As each lender assesses income differently, you can borrow more from one lender than another.
Self-employed or contractor
Being self-employed or working as a contractor can lead to a complex income structure, which can cause problems for your mortgage. You must prove your income is sustainable to avoid being turned away.
Most lenders require self-employed applicants to have at least two years’ accounts. You’ll need proof of future work and a healthy history of continuous contract work if you’re a contractor.
Having too much debt
Mortgage lenders typically refuse applicants with heaps of debt. Too much debt can affect your affordability and make it appear your finances are under pressure.
Repay as much debt as possible before applying for a mortgage. You’ll improve your mortgage chances and be able to borrow more. The last thing you want is a mortgage if you already have a lot of debt.
Not registered on the electoral register
You’ll need to register on the electoral roll so lenders can confirm your address and identity. Registering to vote gives your application credibility, and lenders can verify who you are.
Too many credit applications
Making too many credit applications in a short time may appear as though you have financial problems, which can worry lenders. Doing so can also bring your credit score down, as each application leaves a footprint on your file.
A record is made on your credit file each time you apply for credit, so try to minimise applications at least six months before a mortgage.
Refused because of payday loans
If you’ve used payday loans, they’ll be a record on your credit file. Payday loans are associated with financial difficulty, so most lenders won’t accept applicants who have used payday loans in the last 12 months.
Read more: Can I get a mortgage after payday loans?
Mistakes on your application
Lenders will reject mortgage applications even with minor errors. Errors such as an incorrect date of birth or discrepancy with your name can be enough for a mortgage application to fail.
You may even have mistakes on your credit file that you’re unaware of. If you haven’t already, it’s a good idea to download your credit reports to check they’re correct.
Lenders can decline a mortgage due to a property being unsuitable. Each mortgage will undergo a survey before you’re accepted. Any concerns that a surveyor raises can cause an application to fail.
What should I do if I’m declined for a mortgage?
Don’t worry! Lenders can reject a mortgage. Just because one lender turned you away doesn’t mean they all will.
The best thing you can do is to speak to an advisor who can assess why your mortgage wasn’t approved. Advisors can then find eligible lenders, so you’re not refused for a second time.
You can also take the following steps to strengthen your application:
- Find out why you were refused. Doing so will give you an insight into how you can improve your application. You’ll also understand the criteria you’ve failed so you can check whether another lender will accept your issue.
- Strengthen your mortgage application. You can do this by saving for a higher deposit, clearing as much debt as possible, and improving your credit score.
- Minimise your spending. Lenders will check your outgoings, which can bring your affordability down. Spending less will improve your application, and you may be able to borrow more.
- Tread carefully. Take your time before reapplying with another lender, as you’ll want to be sure you meet all of their criteria. You can get an advisor to double check you’ll be eligible for a mortgage.
Will being declined a mortgage affect my credit score?
Being refused a mortgage won’t affect your credit score, but each time you apply for credit, it will leave a footprint on your file.
Your credit file won’t show if a lender refused you, but it will show that you’ve applied for a form of credit.
A mortgage application will leave a hard footprint. Making several mortgage applications in a short space of time will affect your credit score.
Mortgage declined after an agreement in principle
Lenders give an agreement in principle (AIP) to say you’ll likely get a mortgage based on the information you provided. An AIP is helpful as it gives you a budget to begin your home search and credibility when making an offer on a property.
However, an agreement in principle is not a formal mortgage offer and doesn’t guarantee a mortgage. You can have your mortgage declined even if you have a mortgage in principle.
Once you start your mortgage application, lenders will dive deeper into your circumstances. At this point, they may find issues with your application, such as bad credit or insufficient income. If this happens, you can ask your lender why they changed their mind.
Mortgage rejected by the underwriter
Having a mortgage rejected at the stage of underwriting can be extremely frustrating. That said, an advisor can usually rescue an application at this stage.
If an underwriter has identified a problem, it can be a matter of speaking to the underwriter to clarify any concerns. Mortgage advisors would do this on your behalf.
Why underwriters may refuse a mortgage
The main reasons why underwriters reject applications are:
- Undisclosed adverse credit issues
- Proof of income not satisfactory or too low
- Incorrect or conflicting documents supplied
- Discrepancies on your application form
- The underwriter deems you to be a high-risk borrower
As each lender varies in approval methods, the respective underwriters also vary in assessing each case.
Underwriters must follow strict lending guidelines, so if there’s something questionable and nobody to inform them otherwise, they’ll typically reject the application. An advisor can clarify to underwriters which can be the difference between being declined or approved.
Declined a mortgage after a property survey
Lenders will carry out a mortgage survey of the property you wish to purchase. Lenders will do this to check that the property you’re buying meets their requirements.
A lender may decline a mortgage because the property doesn’t meet its criteria. The build material may not be suitable or needs significant work before you can move in.
A surveyor can also down-value the property. You may have agreed on a price of £250,000, but the surveyor only values the property at £200,000.
Although you can still get a mortgage, you must make the difference with your deposit.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.