What To Do If Your Mortgage Is Declined

October 24, 2022

If your mortgage application is declined, this will naturally be a disappointing and frustrating piece of news. However, it’s certainly not the end of the road, and it’s not at all an uncommon situation. Remember that all lenders have different assessment criteria, and being refused by one doesn’t mean that another won’t make an offer. 

If you are not sure why you’ve been turned down, it’s worth looking at some of the most common reasons that mortgages are declined. The stage in the application where the refusal is made is important too, as there tends to be different reasons at the pre-approval stage, and after an agreement in principle, or valuation has been given. 

If you are rejected at the pre-approval stage, it’s important to pinpoint the reason before applying to another lender, as this is likely to make the situation worse. You could ask the lender directly for their reasoning, but they are not obliged to offer an explanation. 

One of the most common reasons for declined mortgage applications is a low credit score. If you have not checked to see what your credit score is, there are plenty of online tools available to help you do this. Credit records are made available to banks and other financial institutions to help them assess the creditworthiness of a potential borrower.

Your credit record will document how responsibly you have managed your finances over the previous six years. It does not take into account your income, savings, or benefit payments, so even financially well-off people can have a poor credit score, and a low income does not mean you will automatically have a low score.

It does record any late or missed payments on loans and bills, and other regular outgoings. If you have any debts, Individual Voluntary Agreements, bankruptcies, or County Court Judgements within the past six years, these will affect your credit score. Financial ties with a partner or housemate with bad credit can affect your score as well. 

 Sometimes less obvious reasons, such as not being on the electoral roll, or even a mistake in your address, can lead to a declined mortgage application. Therefore, it’s worth checking all the small details carefully if you are still unable to account for a declined mortgage application.

Even if your credit score is good, the lender may not believe that your income is sufficient or reliable enough to afford the repayments on the amount you want to borrow, maybe if you have just recently changed jobs. They may also have concerns if you have high monthly outgoings, or a very small amount of deposit available. 

Building up a good credit history can take time if yours is less than ideal, but the sooner you can tackle any problems, the better. Set up direct debits for all your bills and other regular outgoings, and pay off any outstanding debts if you can. If you have severe issues, it may be best to consult a debt advisor.

Cutting back on living costs is difficult at the moment, with energy bills rising steeply, and rent and food costs also soaring. However, you could see if you could reduce the amount you need to borrow, by looking at properties in cheaper areas, flats instead of houses, or Help to Buy options, such as Shared Ownership schemes. 

There is no getting around the fact that the majority of lenders will want to see that your finances are in good health, because this represents less risk to them. Assessment criteria have been tightened up considerably since the financial crash of 2008/9, which was partly caused by widespread sub-prime mortgage deals across the US and Europe.

As we are heading into another rocky phase in the economy, lenders are likely to be more wary of any red flags in your application. However, this is not to say that you should give up on the idea. There are still plenty of lenders out there willing to take on clients who do not find favour with the mainstream banks and building societies.

Before reapplying, it would be well worth seeking the advice of a specialist mortgage broker who has a good knowledge of the market, and will know the right lenders to approach. Depending on your individual circumstances, it’s still possible to get a mortgage deal.

The broker will make sure that your application form is accurate, and will only apply to those lenders who are likely to make an offer. This guards against the danger of a further rejected application. To talk to an adverse credit mortgage broker in the UK, please get in touch today.

Your home may be repossessed if you do not keep up with your mortgage repayments.

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