MORTGAGE DECLINED

Before you do anything, it is helpful to get a mortgage in principle from a bank. A mortgage in principle involves asking a lender how much they may be willing to lend. Once you know how much you may be able to borrow, you can gauge the type of property you can afford and start searching house listings and booking viewings.

However, an agreement in principle is not a guarantee that your mortgage will be accepted. Instead, a mortgage in principle works to reassure sellers or estate agents that you are a serious buyer.

A mortgage may be declined after a mortgage in principle has been offered because something came up during a more in-depth search that caused concern. Some banks will explain why they refused a mortgage application when asked. However, if they decline to give a reason, your mortgage broker will be able to assess your financial situation and find a lender that is more likely to approve your application, following a mortgage declined scenario.

Once you have found the property of your dreams within your price range, it is time to submit an official mortgage application. Unfortunately, there are multiple reasons why a mortgage declined scenario arises, including:

• Proof of income being insufficient
• You are self-employed
• Fraud market
• Your credit score is low
• The property in your application is unsuitable
• Mismatching information

It is widely accepted that the bigger your deposit, the more a bank may be willing to loan. This is because applicants with smaller deposits are riskier to banks who, of course, must protect themselves first and foremost.

To reduce the risk of your mortgage being refused, assess whether you need more time to save a considerable deposit.

At this stage of the process, you may be breathing a sigh of relief knowing that you will be the owner of your dream property very soon. Unfortunately, you may end up with a mortgage declined even at this stage.

It is rare for an application to be reviewed and have a mortgage declined at this stage, but it does still happen. The reason for this would generally be finding a problem, or even something suspicious, that was noticed previously. The good news is that this should not be a problem so long as there are no errors in your application or attached documentation and you are 100% honest about your income and outgoings.

Another situation would involve incredibly slow movement between the mortgage offer and completion. This will only happen if the mortgage offer expires, so you must understand when this will be and ensure the necessary steps are taken to avoid this outcome. Of course, sometimes, situations arise that are out of our control. If this happens, get in touch with the lender as soon as possible to discuss extending the offer or renegotiating the terms.

This can be a particularly frustrating part of the process for your mortgage to be refused. After all, you have found the property you want to buy and may have been daydreaming about moving day and relaxed evenings in your new space. Unfortunately, mortgage refusals at this stage are common.

There are a couple of reasons a mortgage is declined at this point in the process, such as the value of the property being higher than the mortgage in principle you were offered. Some lenders have LTV criteria, and if the value of the property changes and falls outside of the guidelines following valuation, the lender may have to pull out.

Valuations may uncover information that devalues the property, such as structural problems. In these instances, the lender may refuse the mortgage because the LTV is lower than you have agreed to pay, and you will have your mortgage rejected.

In 2014, the Financial Conduct Authority carried out a Mortgage Market Review and, consequently, all lenders in the UK now have increased responsibility for the applications they approve. Therefore, if there is doubt regarding affordability, your application can be declined, this review included the banning of self-cert mortgages.

All banks will have a different set of criteria when calculating affordability; however, in general, they will consider your income and outgoings. Some lenders may also carry out a ‘stress test’ so that they can feel confident you will be able to make the required repayments, even in the face of interest rates increasing.

Affordability: A calculation a bank will carry out to ascertain whether you will be able to meet your mortgage repayments consistently.

LTV: ‘Loan to value’ refers to the price of a property after the deposit has been paid.

Mortgage in principle: Statement from your lender confirming they are willing to lend a certain amount of money based on the information provided.

Underwriting: The process of determining if the risk of lending is low enough to be acceptable.

Stress test: A test that reviews whether you could still make repayments if interest rates fluctuate.

Research published by a credit card company reported that one in five applicants have a credit application rejected. Of those, 10% had their mortgage application declined. Different banks vary in terms of services and features. The lending criteria for being refused a mortgage differs from lender to lender. Do not assume that a refusal of your mortgage application is the final word.

Banks tend to be overly pessimistic. They often anticipate the worst outcome when dealing with their customers!

Banks, therefore, take all the necessary measures to safeguard themselves from financial losses, and if repayment of the loan is in doubt, they may deny the application request.

If you have fulfilled the essential requirements, for example:

• Only wanting to borrow as much as the bank is prepared to lend according to your income
• You have enough deposit money for the mortgage application

Listed below are several reasons leading to a mortgage application declined scenario, such as:

• An inability to demonstrate your income or having a pattern of inconsistent income
• There are mistakes in your application, such as incorrect or mismatched information
• Self-employment can create risks for lenders
• You are employed on a short-term contract, variable hours contract, or maybe even a zero-hour contract
• You are tied to various financial commitments
• You are a foreign national without citizenship or indefinite leave to remain
• There is no record of you on the electoral register
• You have applied for the wrong type of mortgage
• There have been recent instances of missed or late payments

You may also have a mortgage declined if your credit score shows that you have:

• Experienced a bankruptcy
• Have a county court judgement (CCJ) or default against you
• Had loans or applications for credit and credit cards rejected
• Had a high number of credit checks
• Missed or made payments late

These situations may cause a bank to lose confidence that you will be able to make the monthly repayments. Remember that the bank aims to make a profit, so they will shy away from most things that will put them at risk.

The first thing is to confirm why you had a mortgage declined, as this may not be revealed initially. Once you understand why you have been refused a mortgage, you can approach the right mortgage lender or make a plan of action to increase the likelihood of your next application being approved.

Every mortgage application requires a hard credit check, which impacts your credit score. Therefore, it is essential that, after your initial application is declined, you take steps to prevent the same thing from happening again. Banks, like any business, endeavour to make a profit and tend to avoid activities that involve potential risks. If you have had a mortgage rejected, or you are concerned that it may be, get in touch with a mortgage broker who has extensive contacts with a variety of banks and lenders.