Applying for a mortgage can be a long and stressful process, especially without the help of an independent mortgage broker. And, what if you have a mortgage declined? Then it can all become extremely nerve-racking. You could be left unable to buy a home, or stuck as a mortgage prisoner in your current deal. Fortunately, being rejected for a mortgage doesn't have to be the end of your journey. There are plenty of ways that you can improve the case and reapply for another mortgage.
In this guide, we'll go over the possible reasons for your mortgage getting declined, as well as what you can do about it. We'll also discuss how using an expert mortgage broker can help ensure that your mortgage application gets approved.
When Can a Mortgage Be Declined?
A mortgage application can be declined at almost any stage of the process – but this is highly unlikely after mortgage offer - and you can also be declined whether you're buying your first home, purchasing an investment property, moving home, or remortgaging. This means that proper support such as that from a mortgage adviser throughout the whole process is invaluable, as it’ll help you manage any issues and do what you can to progress your application.
While having a mortgage application declined is something that can happen at any point, there are usually a few common reasons that can crop up during different stages. For example, a rejection at DIP (Decision in Principle) is most likely to be due to credit issues or affordability, while a rejection after this is more likely to be due to issues with the property or an inability to evidence income declared in the DIP.
Why Are Mortgages Declined?
Since lenders want to limit their risk and make sure that borrowers meet their criteria, there are many checks to pass to qualify for a mortgage. This means that there are multiple reasons why a mortgage could get declined or you could find the amount you can borrow limited Here are some of the most common reasons for the rejection of a mortgage application or capped borrowing amount.
Affordability – Not Enough Income
One of the most important things that lenders want to check is whether or not you can afford the mortgage. Not all lenders are the same and they will assess income in various ways, which is why some may be able to lend you more than others. Therefore, depending on the income that’s included, you may not be able to borrow as much with one lender as with another.
Although a lender won’t typically decline an application based on income alone, they may reduce the total amount they’ll lend to you, meaning you may not be able to afford the property you want.
A lender may reject your application if your income is not enough to afford the mortgage alongside your outgoings.
Work out how much you could potentially borrow based on income with our calculator.
Difficulty Including or Evidencing Income Sources
Another issue that could get your application declined is if you have the income but the lender will not accept it as part of their mortgage affordability calculations. Some lenders won’t accept investment income, benefits, commissions or bonuses.
Even if some lenders are able to accept alternative forms of income, you could have an application rejected or your loan amount capped if you struggle to provide suitable evidence. This is more likely to happen with income sources such as certain professions like gambling and cash income.
If the lender does not accept all of your income sources, this could make it appear that you're unable to afford the mortgage and limit what you can borrow or possible result in them not proceeding with your application.
Too Many Debts and Other Outgoings
As well as looking at your income, lenders will want to consider your outgoings. If your outgoings are too high, this could impact your ability to meet your mortgage payments each month.
One of the items some lenders look at regarding outgoings is your debt-to-income ratio. This refers to the proportion of your income spent on debts such as loan payments, car financing, overdraft repayments, or credit card payments. For example, if you have a monthly income of £2,000 and pay £700 per month towards debts, you would have a debt-to-income ratio of 35%. Typically, lenders that consider debt-to-income ratios will only accept applications from people who have a debt-to-income ratio of 20% or lower, though some lenders will accept higher ratios.
Risky Financial Decisions
Many lenders opt not to lend to people with concerning financial decisions in the past or present. This can include using payday loans to regular gambling, as both of these demonstrate that you could struggle with money management and might default on your mortgage.
Poor Credit and Credit Issues
Another major factor that lenders look at is your credit score and credit history. Your credit score will give an overview of your financial history. This is usually looked at with a soft (sometimes hard) credit check before you are given a DIP. As long as you don’t have a history of bad credit events and have a reasonable score (and meet the rest of the lender’s criteria) you should stand a good chance of securing a DIP.
Some credit issues that could result in an application being declined include:
- No credit history
- Late payments
- Missed payments
- Too many recent loan applications
- Defaults
- County Court Judgments
- Individual Voluntary Agreements
- Debt management plans
- House repossession
- Bankruptcy
Not all of these issues carry the same weight, and you might find that lenders will accept you with some of the more minor issues.
A hard mortgage credit check will also be performed later in the application process before mortgage offer. A hard credit check leaves a footprint on your credit profile – and too many hard credit checks in a short space of time can negatively impact your overall credit worthiness and score. This is why it’s important to make sure you know why your mortgage application has been declined and seek advice from a mortgage broker, before simply reapplying with another lender immediately.
Inability to Evidence Deposit
If your deposit comes from cryptocurrency, a sanctioned country or simply a build up of unevidenced cash savings then it can be hard to prove that it’s a suitable source to the lender. This can result in them rejecting your application.
Risk of Fraud
If the lender has reason to believe that you've lied on your application by claiming to have a higher income or trying to conceal credit issues, they could reject your request for a mortgage. This is why it’s always important to be honest and make sure that your paperwork is correct to eliminate any risk of fraud.
Being New to the UK
If you've only recently moved to the UK, you may not be eligible for a mortgage from most UK lenders. Typically, you will need to have lived in the UK for at least the past 3 years to qualify for a mortgage.
House Value Issues
Mortgage valuations can take place quite late in the mortgage application process. If the valuation finds the property is uninhabitable or of non-standard construction and the lender can’t consider it as security, then they may reject the application. Some lenders also won’t accept properties that are above commercial premises like takeaways, pubs or near garages, as these can be riskier security. If the valuation finds that the property is worth less than what you’ve asked for (plus deposit) then the lender won’t normally reject the application but may offer you a lower mortgage amount.
What to Do if Your Mortgage Is Declined
It can be hard to know what to do after getting a mortgage application rejected. It's natural to feel upset and frustrated after declined mortgage applications, but it's important to plan what you can do and make sure you approach the next steps with care to give yourself the highest chance of getting approved with your next application.
Do Not Apply Again Immediately Without Research
It can be very tempting to apply immediately after getting a mortgage application rejected, but try to resist this urge. Instead, you should take a step back and consider how to improve your application and overcome the problems that led to getting declined.
Firstly, this is because you don't want to keep going through the hassle of multiple applications if you're unsure of being accepted. Secondly, you might find that having too many hard credit checks and rejected applications will limit your pool of lenders and reduce your chances of getting accepted for a mortgage.
Once you know what the issue is and have taken the right steps, you can reapply pretty quickly.
Speak to a Broker
One of the easiest ways to get approved for a mortgage after a rejection is to make sure that you get expert advice about your situation. You can do this by finding an independent mortgage broker like John Charcol with experience in finding mortgages for people who have previously been rejected.
A broker can help you find a mortgage because we have the know-how and experience to match your case to the right kind of lender for your needs. For example, if you were rejected due to poor credit, rather than blindly reapplying with another high street lender who may also reject your application, one of our advisers may be able to find an adverse credit lender who will be able to offer you a mortgage. If you're struggling to prove your affordability because you have multiple complex income sources, we can direct you towards a lender with more flexible criteria.
In addition, brokers have access to a wider range of lenders than the general public. This is because there are plenty of lenders that don't deal directly with borrowers. So even if you have been declined by HSBC, Barclays, or another high street lender, a broker will be able to find a lender to suit your needs.
We’ll also be able to help address any issues that need improvement and give you advice to boost your chances of being accepted. Here at John Charcol, we have brokers with experience in all kinds of difficult cases, meaning we can help find a mortgage for applicants in even the most complex situations.
Improve Affordability
If you've been declined due to affordability, you might need to look at your income and outgoings to see if you can improve these. In terms of income, this might mean waiting until you have a higher income, using a broker to approach a lender that can consider alternative income sources, adding another person and their income to the mortgage application or simply applying for a smaller mortgage.
If you're looking at lowering your outgoings, you should consider whether you can pay down any debts, as this will help improve your debt-to-income ratio. You could also look at lifestyle changes that would let you put more money toward your mortgage payments each month. You can use a mortgage repayment calculator to see how your income will cover the monthly costs of a potential mortgage deal.
Put Forward a Higher Deposit
There are many lenders that will accept less than ideal cases, such as borrowers with poor credit, low affordability, or other issues. However, many of these lenders will require a higher deposit. This is because a larger deposit reduces the amount that you have to borrow from them for a property, making the mortgage affordable and lowering the risk taken on by the lender.
A standard residential mortgage will usually require a minimum deposit of 5% - 10%. If you're looking for an adverse credit mortgage, you might have to put forward a deposit of 15% - 20% as a minimum, depending on how severe your credit issues are.
Improve Your Credit Score
Your credit score is a major factor that lenders look at. If you've been declined due to poor credit, it might be pretty obvious that you should aim to improve your credit rating. However, even if you've been declined for another reason, boosting your credit score can show that you’re a more reliable lending prospect for mortgage providers, which can help get you accepted and secure a better rate. You can improve your credit rating with the following tips:
- Make sure you make all loan and debt payments on time
- Do not max out all of your available credit
- Avoid applying for other loans before you apply for a mortgage
- Settle any outstanding defaults, CCJs (county court judgments), or other missed payments
- Avoid unplanned overdrafts or credit card debt
- Wait long enough for more serious issues to leave your credit report – bad credit events stay on your credit profile for 6 years and the longer ago they were, the less severe the impact on your credit score
Do I Have to Apply for a New Mortgage?
After a lender has declined a mortgage, they won’t usually want to consider another application from the same borrower. It’s best to review why your application was rejected, make the necessary improvements where possible and approach a new lender with criteria that better aligns with your situation. Your John Charcol mortgage adviser can help you do this so you stand the best chance of having your next application accepted.
Can Being Declined Affect My Credit History?
Whether you've been declined for a credit issue or something else, you might worry about how being declined for a mortgage will affect your credit score. The rejection itself is not likely to cause a problem on your credit report, but a hard credit check will leave a footprint that other lenders can see. Too many hard credit checks in a short period of time indicates to lenders that you're scrambling to get a mortgage approved and that you're potentially struggling with your finances.
This is why it’s important not to reapply immediately without reviewing your situation, making improvements and consulting a mortgage broker.
What to Do After Getting Declined for a Mortgage: Next Steps
Getting declined for a mortgage is stressful, but it doesn’t have to be the end of your home-buying journey. Once you've figured out why you've been declined, there are plenty of ways that you can work on improving your application for next time.
One of the best ways to find a mortgage after being rejected is to go through a broker. Here at John Charcol, we have expert advisers who have helped many people find suitable lenders after having an application declined. We have years of experience as well as access to a wide range of specialist lenders. Get in touch today to see how we can help or call us on 0330 433 2927.