Declined mortgage application: Next steps

Every mortgage lender has unique eligibility criteria. If one lender turns you down, it doesn’t mean they all will.

The key to having a second mortgage application approved is to explore why your first one was declined and seek out a lender that will overlook this.

It’s rare for lenders to go into detail about the reason you were declined, but a mortgage broker will usually have a solid idea about what was wrong with your application.

If you didn’t work with one to make your first mortgage application, it’s highly recommended to do so this time.

What to do if you can’t get a mortgage agreement in principle

Lenders will offer a mortgage agreement in principle based on a basic overview of your income and credit score.

If you’re unable to obtain one, it’s likely you’ve failed to meet their minimum lending criteria in one of those two categories.

Your best option in this situation is usually to apply with a mortgage lender that has more lenient eligibility criteria. There are lenders out there who specialise in offering mortgages to applicants with bad credit or those with a low income.

A mortgage broker will have in-depth knowledge of individual lenders’ eligibility criteria, and will therefore be able to recommend the best deals likely to be available to you.

What to do if you had a mortgage rejected after having an agreement in principle

An agreement “in principle” is exactly that. You’ll still need to go through a full application. This involves a deeper inspection of your credit report and financial history, and there’s every chance the lender might discover something that puts them off here.

Here are some common discoveries that cause mortgage applications to be declined:

• Recent or undisclosed bad credit events.
• Concerns about the stability of your income and outgoings.
• Concerns about the stability of your employment.
• Concerns about the source of your deposit (some lenders are put off by deposits funded by gifts or loans).
• Administrative errors, such as a lack of address or employment history, no information on the electoral roll or unacceptable documents being supplied.

The good news about getting turned down at this stage is that you did pass a lender’s basic assessment. Often, you can fix a lender’s concerns by supplying additional information or fixing an administrative error. If not, it’s highly likely there will be another lender willing to approve you. A lender will rarely tell you the exact reason you’ve been declined, which is why it’s worth working with a mortgage broker to get to the bottom of the situation.

What to do if you had a mortgage rejected after a valuation survey

A valuation survey takes place so that a lender can be sure that the property provides adequate security against the mortgage loan. You’ll be informed if the survey reveals something concerning. The problem will usually be a structural fault or that the seller has over-valued the property.

In this situation, the lender may offer you a smaller mortgage, or a mortgage retention. Either way, you’ll need to come up with extra funds, negotiate the selling price or find another property to live in.

Is it worth appealing against a declined mortgage?

It’s very rare that appealing against a declined mortgage provides a positive result.

This should only be considered if you know there was important information not considered by the mortgage lender’s underwriters.

Even then, the appeal process is very convoluted. You’re better off spending your energy finding a mortgage lender that will approve your application.

Should you wait to make a second mortgage application?

When you make a mortgage application, you’ll be credit checked, and this produces a dip on your credit score. Too many applications in a short period of time can cause serious damage to your credit score, making it much harder to be approved for a great mortgage deal.

You will boost your chances of being approved by waiting and improving your credit score before making a second mortgage application. You can check your credit score here.

However, there are many buyers who don’t want to wait any longer to buy a house. Buyers in this situation are urged to work with a mortgage broker, as these individuals are best placed to recommend a lender that will approve your application.

How to make yourself more attractive to lenders

In many cases, being approved for a mortgage may only require a small tweak to your application. However, if you’re a long way from being approved for a great mortgage deal, you can take these steps to make yourself appear more mortgage-worthy.

• Borrow less. A lender’s eligibility criteria tends to become more lenient when you’re borrowing a smaller amount. You can borrow less by saving a bigger deposit, choosing a cheaper property or utilizing a government scheme for low-earners.
• Improve your credit score. Your credit score improves every time you make a timely repayment on debts and bills. It plummets if you go overdrawn or miss a repayment. Fix your household budget and set up direct debits to ensure all bills are paid on time. Also, consider making small payments on a credit builder credit card and clearing your monthly balance in full.
• Add a guarantor. A guarantor is an individual who agrees to cover your mortgage debt if you fall behind on the repayments. When you add one to your mortgage application, lenders tend to loosen their eligibility criteria.
• Reduce your outgoings. Lenders will check your recent bank statements to ensure you can comfortably afford your mortgage repayments. By reducing your outgoings, you’ll appear more of a safe bet in their eyes. They usually ask for at least three months of bank statements, so you’ll need to make some long-term changes to your spending. You can start by haggling over your utility bills and clearing any debts you’re paying interest on.

Other reasons a mortgage application may be declined

Finder survey: Have you ever had a mortgage?