Why has my mortgage been declined, and what can I do now?
What if my My Mortgage has been declined? With mortgage rates on the rise and costs soaring, we know people are anxious to get their next mortgage without delay to secure the best deal possible. Although we don’t recommend people trying to do navigate their way through a mortgage application themselves from scratch, we do understand that many people do. Maybe you have found yourself with an AIP (agreement in principle) only to be declined further down the line? You are probably worried and disappointed and wondering what to do next. Read on to find out why this happens and what exactly you can do about it.
If you get your mortgage application right from the start, with all the correct evidence; payslips, bank statements and identification, you will stand a much higher chance of your mortgage being formally offered. When we make an application for a client, we ensure all the groundwork is done first and we only submit it when we have every confidence it will be fully successful.
Perhaps you have been trying to do your mortgage yourself or your current broker has come unstuck somewhere with your application. In our experience, below are the reasons why mortgages can be declined.
Your credit score
Missed or late payments, defaults and CCJS may have slipped through the net at the stage of your agreement in principle. At this point, your case goes to an underwriter (the person from the lender who looks at your case in detail) as most must be signed off by a person who has triple checked everything against the lender’s criteria. Some straightforward mortgage applications are done automatically but that is only if your income is straightforward and if you have a large deposit and of course, it depends on the specific lender.
You must declare all outgoings and financial commitments from the very start, as the lender will base their decision on this in conjunction with your income. Credit cards, student loans, car loans and buy now pay later payments are usually the ones people often forget about when considering their outgoings. Small payments are easy to forget but are enough to take your mortgage from a yes to a no, as it all counts to how much you can afford for your mortgage each month. Take a look at our budget planner here as a starting point.
When moving or remortgaging your lender will instruct a surveyor to value the property to ensure the value is correct and to note any major structural concerns. Sometimes a surveyor will conclude that your property is worth less that you thought. This can then lead to your mortgage being declined because the risk to the lender is greater. The lender would be loaning you more than they feel the property is worth.
For example, if you’re borrowing 90% of the property’s value with 10% deposit and the lender thinks the property is worth less, the equity will not be as much as was originally planned. In this case, you could borrow less if that is possible to correct the loan to value.
If you find yourself in this situation when moving, you could borrow less or renegotiate a new price
Internal credit score
This is the lender’s whole financial picture of you; how old you are, your situation, how much you earn and what you do for a living. Sometimes, some lenders will not be comfortable with their internal credit score and you won’t pass. It can be disputed, and it can be successfully overturned but this is where you need your mortgage broker to use their knowledge of lender’s criteria to fight your case! It is rare for an internal credit score to result in a mortgage being declined but it does happen. We are expecting this issue to rise as lender’s tighten up with the increase in the cost of living.
Debt to income ratio
Basically, how much overall debt you have compared to your total income. This issue doesn’t usually get through the AIP stage but occasionally it can crop us a problem later down the line. This is why it is crucial to provide the lender with all the correct paperwork from the very start of your application as it can cause issues with your mortgage being declined at a later date. An expert mortgage broker shouldn’t submit anything until all documents are in order. If you’re doing your mortgage yourself or using a broker and you can’t provide everything from the outset, (payslips, bank statements, id) it will mostly likely be declined.
Underwriters make mistakes like we all do! For example, not looking at the criteria properly. A lender may declare that a certain type of income can’t be used, but their criteria sets out something different. A mortgage broker can argue it (I know we have certainly had cases overturned in the past!) Imagine trying to argue your mortgage case yourself in this situation. Would you be able to put a case forward to a lender and argue that ‘this doesn’t match your criteria’ would you know the criteria well enough? If you have a mortgage broker on your side, they are in the best position to fight your corner as they should know the lending criteria inside and out.
A solution to a declined mortgage
An experienced, expert mortgage broker should know exactly where to help you if your mortgage is declined and if you find yourself in any of these situations. A word of warning though – it is far easier for a mortgage broker to fight your case if they were the one to submit an application the first place! No one else can get involved in a case that you have started yourself.