What can I do if my mortgage application is declined?

Why was my mortgage application declined?

If a bank or building society has rejected your mortgage application, this means that for some reason you didn’t fit their lending criteria. Here are a few reasons you might have seen your mortgage refused:

Poor credit

How well have you managed debt in the past? Mortgage lenders look at your credit rating before deciding whether to approve an application, or not. If they see that an applicant has struggled with debt before, this can make them reluctant to lend. 

Too much debt

Lenders may be reluctant to approve your mortgage application if you have a number of debts already. For example, if you already have credit card debt, personal loans and car payments, lenders may be concerned that you’ll struggle to keep up with your mortgage. Typically they’ll look at your debt to income ratio (DTI) which weighs up how much you owe each month, with how much you earn each month. 

Too many credit applications

Have you applied for any other forms of credit in the last few months? Too many credit applications in a short space of time can put mortgage lenders off. This is because they assume you’re desperate for credit, and may struggle to meet your financial obligations.

You don’t earn enough

It’s possible to get a mortgage even if you have a low salary, but since each lender has its own affordability criteria, some may reject low income applicants. Again, this is because they worry about the applicant’s ability to repay the loan.

You’re single

Buying a property as a single person can be a challenge too. It can be hard to borrow the amount you need for the house you want, even if you earn an above average salary. 

This is because most lenders will only lend between 4-5 times the borrower’s income. So if you earn £40,000 a year, it can be a struggle to borrow more than £160,000-£180,000. Some lenders might even offer you less than this. In some parts of the UK, especially within London, this might not be enough to buy a home. 

Whereas if you were applying for a mortgage with a partner, friend or sibling who earned the same salary, your affordability could potentially double. You might be able to borrow as much as £360,000.

You’re self-employed

If you’re self-employed, this could affect your ability to get a mortgage. Some mortgage lenders are fussy when it comes to self-employed mortgages, especially if your income is unpredictable and fluctuates from one month to the next. 

Too many expenses

When assessing your mortgage affordability, lenders will compare your income to your expenses to see how well you’d be able to manage mortgage payments. 

If you have a number of financial responsibilities and the lender believes these could affect your financial stability, they may reject your mortgage application. Insurance, commuting costs and childcare fees are just a few expenses that lenders may take into account.

Not on electoral roll

As petty as it may sound, whether or not you’re registered to vote can affect your ability to get a mortgage too. Lenders often use the electoral roll to confirm a mortgage applicant’s identity. If you’re not on the register and they’re unable to find the information they need, they may turn you down. 

Remember that mortgage lending criteria can vary from one lender to the next. So while some lenders might reject you for being self-employed or having an imperfect credit rating, other lenders will be happy to help. 

Your likelihood of getting a rejection can also be impacted by changes in the market, as mortgage providers will make changes to their lending criteria in response to changing interest rates or housing demand. If lenders find they have too many applications for a certain type of mortgage product, they can also seek to stem demand by tightening their lending criteria for a short period of time. 

Does getting rejected for a mortgage damage my credit score?

Technically, being rejected for a mortgage doesn’t damage your credit score. Rejections don’t show up on your credit file. When a potential lender looks at your credit report, they won’t know if you’ve already been rejected for a mortgage. However, they will see the applications that you’ve made. 

Every time you apply for a type of credit, whether it’s a mortgage, personal loan or credit card, this leaves a ‘hard’ search on your credit report. Opening a new bank account can sometimes leave a hard search on your credit file too, even if you have no intention of using an overdraft. 

These hard searches can be seen by other mortgage lenders and they’ll take these into account when deciding whether to lend to you.

To sum it up: While a mortgage application rejection won’t damage your credit score, multiple credit applications in a short space of time can. 

Why was my application rejected when I have a Mortgage in Principle?

Getting rejected can be particularly disappointing if you already have a Mortgage in Principle (MIP) in place. You might feel as though your time has been wasted, especially if you already found the house you wanted to buy. So why did the mortgage lender change their mind? 

You might already know how an MIP (also known as an Agreement in Principle) works, but let’s recap just in case. It’s essentially a document issued by a lender to say that based on the information it’s been given, it’s likely that they’d give you a mortgage if you applied for one.

A Mortgage or Agreement in Principle can be a really useful document to have. First of all, it can give you an idea how much you’re able to borrow. That way, when you’re scrolling through RightMove or Zoopla, you can look for a property that’s within your budget. 

Second of all, it’s helpful for sellers too. It makes it easier to identify which buyers are in a good position to afford their home. The last thing a seller wants is to take their house off the market only for the buyer to be ineligible for a mortgage. 

However, although this document can be a good indicator of how much you can borrow, it’s not a guarantee. It’s possible to have your mortgage application rejected even if you have one of these documents in place. 

There are many reasons this can happen. Often, it’s because the lender has carried out more thorough financial checks and has found some information that doesn’t meet their lending criteria. 

In some cases, it might be because your circumstances have changed since you were given a Mortgage in Principle. Did you switch jobs, apply for another form of credit, or had a baby? These are just a few things that might make a lender reassess your mortgage affordability.

This could also be affected by the lender responding to a changing market. For example, if the Bank of England has raised their base rate since you received a Mortgage in Principle, it’s likely that the lender will be making changes to their own interest rates. Sometimes these can nudge your application from affordable to unaffordable.

Why was my mortgage application declined after a valuation?

As part of the mortgage application process, most lenders will carry out a valuation of the property you’d like to buy. They’ll usually do this even if you’ve paid for a valuation of your own. 

If you’ve been denied a mortgage after a valuation this might be because the surveyor has down-valued the property. This means they believe the property is worth less than originally thought. Or perhaps the building is made out of construction materials that the lender believes could affect its value or mortgageability in future.

What can I do if my mortgage application is declined?

If you haven’t already, ask the mortgage lender why your application was rejected. Frustratingly, some lenders won’t give a reason, but it’s worth a try. This can give you insight into what you need to address to get a mortgage application accepted next time round. 

Here’s what else you can do after you’ve had a mortgage rejected:

1. Use a mortgage broker

A good mortgage broker can help you overcome common home buying obstacles so you can get the house you deserve. They’ll go through your finances with a fine tooth comb and help you with your next application.

If the lender won’t tell you why you were rejected, a mortgage broker will probably have a good idea. Mortgage brokers know the industry inside out and are familiar with lenders’ criteria. They know which ones are choosy and which are flexible, and can use this knowledge to help you find the right lender next time.

2. Check your credit report

You’d be forgiven for thinking you only have one credit report but you actually have three. There are three credit referencing agencies in the UK (Experian, Equifax and TransUnion) and each one has its own way of assessing an individual’s credit rating. 

Before applying for another mortgage, it’s wise to check your credit report with each of the three agencies to make sure everything is accurate and up to date. If anything doesn’t look right, you can get in touch with the agency and request a correction. You can do this easily using a service called CheckMyFile, which generates a report combining all three agencies. 

Get your CheckMyFile report here.

3. Avoid applying for other forms of credit 

Earlier, we explained that applying for multiple lines of credit in a short space of time can make it harder to get a mortgage. If you’ve recently had a mortgage application rejected but you’d like to try again soon, avoid applying for any other types of credit until you’ve collected the keys for your new home. 

Applying for other lines of credit in the meantime could cause a domino effect, where one rejection leads to another and then another.

Working with a mortgage broker can help you protect your credit report and improve your chances of getting the mortgage you need.

4. Make yourself more attractive to lenders

You can boost your mortgage chances by showing lenders that you’re a reliable borrower. You can do this by paying existing debts on time and in full. 

If you have a large amount of debt, try to lower your credit utilisation (the percentage of available credit you’re currently using) by paying off as much of it as possible. For example, if you have a credit limit of £5,000 and you’re using £2,500 of it, this means your credit utilisation rate is 50%. This isn’t bad but as a general rule, try to keep your utilisation below 30%. A low credit utilisation rate suggests that even though you have a lot of credit available, you’re not desperate to max out every credit card. 

5. Use relatives’ income to boost your affordability

If you didn’t meet the lender’s affordability criteria, but you have a family member with a reliable income, it may be possible to include their income on your mortgage application too — without including their name on the property. This is often referred to as a Joint Borrower Sole Proprietor mortgage, but we call it an Income Boost. 

An Income Boost is a great way to improve your mortgage affordability, because the amount you can borrow will be based on your combined incomes, which will allow you to borrow more.

There are plenty of other family assisted and guarantor mortgage avenues out there which allow your loved ones to help boost your mortgage affordability without being added to your application. These include gifting a portion of cash, or unlocking equity from a home to give to you as part of, or all of your house deposit. We call this a Deposit Boost.

If you don’t have loved ones who can help you, there are other options out there, including shared ownership as well as a private equity loan, which works in a similar way to the Government’s Help To Buy scheme which has now ended. If you have friends or siblings who are also looking to buy, but struggling to get on the ladder by themselves, you could also consider Dynamic Home Ownership, which is a joint mortgage between you and up to five others.

If you’d like to see how much you could borrow with any of these schemes, create a plan with Tembo today. It takes 10 minutes to complete, is completely free and there’s no credit check involved. At the end, you’ll get a personalised recommendation and a downloadable Mortgage In Principle. Our team of award-winning specialist mortgage experts will then be in touch to help you explore the possible mortgage options open to you to get you on the ladder.

Can I still get a mortgage after being declined?

Yes, it is still possible to get a mortgage after a previous mortgage application has been declined. To do this, you need to address the reason you were rejected in the first place. If this was due to your credit report, avoid applying for multiple lines of credit until after you’ve moved into your new home, and pay any existing debts on time and in full to improve your credit score. 

If your first mortgage application was declined because you didn’t meet the lender’s criteria, look at ways to boost your borrowing power. This could be with help from family, buying with friends or siblings, or through specialist lending schemes. With so many specialist schemes and mortgage products out there, it is best to work with a mortgage broker who can help you find the best option for you.