Why Mortgages Can Be Declined
If you have had financial trouble in the past, it might seem unlikely that you’ll ever get on the property ladder. But defaulting on a finance plan or loan in the past doesn’t mean a mortgage is impossible. Many lenders offer bad credit mortgages that could help you achieve your property goals.
Why Mortgages Can Be Declined
Being declined for a mortgage can feel like a major setback to your property plans, but that’s not necessarily the case. There are many reasons why a lender can decline an application, and some are very simple to address.
Understanding why a lender has declined your application, even after an Agreement in Principle, will help you find a new mortgage deal.
Most common reasons for a mortgage decline
Lenders will decline a mortgage either because you don’t meet their lending criteria, or something about your personal information makes them unsure whether you can pay your mortgage back reliably.
Some of the most frequent reasons for a decline are:
- Missing or making late payments on finance, a loan or credit card
- You’re not on the electoral roll
- Mistakes on the application form, such as an incorrect address or date
- Defaults or County Court Judgement (CCJ)’s on your credit record
- Making too many credit applications in a short space of time
- Ever taking out a payday loan
- Irregular income or an income that is too low to meet mortgage repayments
- Self-employment / contract work where it’s difficult to discern your income
- Recently changing jobs
How can the lender decline me after an Agreement in Principle?
It’s not uncommon for mortgage decline even after an Agreement in Principle (AIP) or Decision in Principle. These agreements aren’t a guarantee, they are a general statement of the amount the lender thinks you could borrow.
Once you formally apply for the mortgage the lender will do a deeper exploration of you as a potential customer. They will check your credit report and ensure that you have a reliable, consistent income. The process can often unearth new information, and so declined applications after an Agreement in Principle are more common than you might imagine.
Will a decline affect my credit score?
Rejection for a mortgage will not give you poor credit history. Your credit report will show that you applied for a mortgage, but it won’t state whether it was approved or declined.
What does make a difference is the number of applications on your record. Each application shows as a ‘hard search’, and making a lot of these in a short time can impact your credit score. If you’ve had a mortgage application turned down, don’t immediately apply for another – seek advice first.
What should I do after I am declined for a mortgage?
Initially, you should attempt to discover why your application was refused. You can contact the lender and request a reason. Not every lender will share the details, but sometimes the issue is very simple and you can address it on the spot.
If this leaves you none the wiser, the next step is to look at your credit score. Choose one of the main credit agencies; Experian, TransUnion and Equifax, and see what information they hold on you. There can sometimes be an error in the details, in which case you should contact the financial provider that placed the information on file and ask them to correct it.
If it seems that bad credit is the cause of your declined application, you can still take steps towards being accepted. The simplest – but not necessarily easiest – way to improve your chances is to save up a bigger deposit. Once you reach 15% or 20% you will have more mortgage options.
Bad credit mortgages are also available from specialist lenders. These are more likely to accept you, although you will often need to pay higher interest rates. You can also explore Help to Buy schemes, Shared Ownership or joint mortgages as potential avenues too.
How can a Mortgage Broker Help?
A Mortgage Broker is a valuable support to anyone looking to buy a home – but we are even more helpful if you have been declined. A broker can quickly get to the bottom of the issue and seek out mortgage lenders that will accept you.
At Ideal Home Loans we have vast experience of all kinds of financial situations and have access to various lenders that you can’t approach direct.
We will start by getting to know you and your financial situation – and watch out for potential challenges. We will help you find lenders that will approve you first time or suggest other ways to make your property plans a reality.
Ideal Home Loans Ltd are authorised and regulated by the Financial Conduct Authority and registered in England and Wales. Our registered office is in Westbury, Wiltshire.