Why Was My Mortgage Application Declined? 10 Common Reasons
Having your mortgage application declined can be a horrible feeling, especially if you’ve already found a property you love and thought everything was going smoothly.
The good news is that being declined by one mortgage lender doesn’t necessarily mean you can’t get a mortgage. Different lenders have different criteria, and a decision that doesn’t work for one lender may not be a problem for another. The important thing is to understand why your mortgage was declined before making another application.
Here are some of the most common reasons a mortgage application may be declined.
1. Your credit history
Your credit history is one of the things lenders will look at when assessing a mortgage application. Things such as missed payments, defaults, CCJs, debt management plans or other credit problems can affect which mortgage lenders may be willing to consider your application. However, having bad credit doesn't automatically mean you can't get a mortgage.
Different lenders have different approaches to credit history, and the type, amount and age of any credit issues can all make a difference.
2. Affordability
Even if you have a good credit history, a lender may decline your application because they don't think the mortgage is affordable based on their assessment. Lenders will look at things such as your income, regular spending, existing debts and other financial commitments when working out what you may be able to borrow.
This is one reason why the amount one lender is willing to offer you can be different from another.
3. Your income doesn't meet the lender's criteria
It's not always as simple as looking at your salary. Different lenders assess different types of income in different ways. This can be particularly important if you're self-employed, receive commission or bonuses, have multiple sources of income, or run your own limited company. A lender may not accept all of your income in the same way another lender would, which could affect how much you can borrow.
4. You have too much existing debt
Existing borrowing can affect how much a lender is willing to lend. Credit cards, personal loans, car finance and other commitments can all be taken into account when a lender assesses affordability.
It doesn't necessarily mean you won't be able to get a mortgage, but your existing commitments could reduce the amount you can borrow or affect which lenders may be suitable.
5. You've made several recent credit applications
Making multiple credit applications in a short period can be a concern for some lenders, particularly if several hard credit searches appear on your credit report. If you've already been declined, it's therefore usually a good idea to understand what went wrong before immediately applying somewhere else. Making another application without knowing why the first one was declined could potentially lead to another rejection.
6. You're self-employed
Being self-employed doesn't mean you can't get a mortgage, but the way your income is assessed can be different from someone who is employed. Lenders may look at your business accounts, trading history, salary, dividends or share of company profits, depending on your circumstances.
If your income has recently changed or you've only been trading for a short period, some lenders may be more suitable than others.
7. The lender doesn't like the property
Sometimes the problem isn't you at all. A mortgage lender also needs to be happy with the property you're buying. Issues with the property's condition, construction, valuation or other factors could affect whether a lender is prepared to offer a mortgage.
This is why a mortgage application can sometimes be declined even when your own finances appear to be in good shape.
8. Your deposit isn't large enough for that lender
The size of your deposit can affect the mortgage options available to you.
A smaller deposit can mean you're borrowing a larger percentage of the property's value, and some lenders may have stricter criteria at higher loan-to-value levels. This doesn't necessarily mean you need a huge deposit. It simply means the lenders available to you may depend partly on how much you're putting down.
9. Your circumstances don't fit the lender's criteria
Every mortgage lender has its own lending criteria. Something that is acceptable to one lender might not be acceptable to another. This can include things such as your income, employment, credit history, age, property type, deposit or existing financial commitments. This is why finding the right lender can be just as important as finding the right mortgage rate.
10. You applied to the wrong lender
Sometimes, a mortgage application is declined simply because the lender wasn't the right fit for your circumstances. This is particularly common with more complex situations, such as bad credit, self-employment, unusual income or certain types of property.
It doesn't necessarily mean there's anything wrong with your finances. It may simply mean that another lender's criteria is more suited to your circumstances.
What should I do if my mortgage application has been declined?
The most important thing is don't panic and don't immediately make another application.
First, try to understand why your application was declined. Once you know the reason, you can look at whether there are other lenders whose criteria may be more suitable for your circumstances. If you've been declined because of your credit history, affordability, income or another part of your application, a mortgage adviser can help you understand your options and identify lenders that may be able to consider your circumstances.
Can I still get a mortgage after being declined?
Yes, it may still be possible to get a mortgage after being declined.
Being refused by one lender doesn't automatically mean that every lender will say no. Mortgage lenders use different criteria, so another lender may assess your circumstances differently. The key is to avoid making multiple applications without understanding why you were declined in the first place.
Been declined for a mortgage?
If you've been declined for a mortgage, you're not necessarily back to square one.
At Fairway Mortgage Advice, we help people across Washington, Sunderland and the wider North East understand why their mortgage application may have been declined and explore what options may be available to them. Whether you've been declined because of your credit history, affordability, self-employed income or another reason, we'll look at your individual circumstances and help you understand what to do next.
Being declined doesn't always mean it's the end of the road.
Get in touch with Fairway Mortgage Advice to discuss your circumstances.