What happens if your mortgage application is declined?

Having your application for a mortgage refused can be a blow, but it doesn’t mean you won’t ever be able to get a mortgage.

If your mortgage application is turned down, it can be disappointing. Take stock of your situation and try to find out why you were turned down before you consider next steps.

Before applying again, it’s important to understand why you may have been turned down. Find out some of the common reasons mortgage applications are rejected below.

Why might your mortgage be rejected?

There are many reasons why you might have been turned down for a mortgage, from your credit history to issues proving a stable income. Here are some of the most common reasons for having a mortgage turned down.

  • Not registered to vote

Lenders need to check you are who you say you are. Being registered to vote at your current address is an easy way to do this.

  • Poor credit history

If you’ve had issues making payments in the last six years, this will be on your credit report. Lenders will check for missed credit card or loan repayments to see whether you’ll be able to keep up with your mortgage payments.

Too many hard credit checks can also affect your credit score. This is why it’s not a good idea to apply for a mortgage with lots of different lenders in a short space of time.

  • Small deposit

A small deposit can be an obstacle to getting a mortgage. Try to aim for at least 15% of the property value for your best bet of being accepted.

  • Too much debt

Too much debt might say to lenders that you’re not ready to take on more of the same. Try to pay off as much of your debt as you can before applying for a mortgage.

  • Affordability

You might not be earning enough to afford the size or type of mortgage you’re applying for. Shared ownership could be an option here, but also think about setting your sights a little lower.

  • Self-employed

If you’re self-employed, you may need to provide the lender with more information. For example, you’ll need proof of two to three years of steady income. If you don’t have enough evidence of past and current earnings, you may be turned down.

Why might you be turned down after having a Mortgage Agreement in Principle accepted?

So, you’ve bagged your Agreement in Principle and are ready to make a full application – but suddenly the lender changes their mind and you’re back to square one. Why might this happen?

The key phrase here is ‘in principle’. This means the lender told you how much they would be ready to offer you for a mortgage based on the information they had from you at the time.

Between the time you get your AIP and make a full application, your income could change. Or the financial information provided doesn’t match with the figures given when getting an AIP. This may mean your application is turned down.

One or more of these reasons may be responsible:

  • Big changes to your monthly outgoings
  • Lender’s valuation doesn’t match what was offered in the
  • Agreement in Principle
  • Switching jobs
  • Applying for other forms of credit
  • A high loan to value (LTV) ratio

Something in your credit history could also come up after a hard search. For example, a note of missed payments to a lender.

What can you do if you've had a mortgage application turned down?

There are some things you can do to try and make sure your application goes without a hitch next time around.

Don’t give up

Firstly, don’t give up! A mortgage is a huge step to make, both for yourself as a homeowner and the lender. The more stability you can show them in your financial life, the better your chances of being accepted.

Check your credit report

There are three versions of your credit history on file, held by each of the UK’s three credit reference agencies:

  • Equifax
  • Experian
  • TransUnion

Different lenders might use different agencies to assess your credit score. Your lender will tell you which agencies they have used and how to contact them. Before you apply again, it might be worth going to all three to check your credit report and score, as all are assessed differently. Learn how to check your Transunion credit score with Halifax.

Check carefully whether there’s anything you might have missed in your application, or anything that would make a lender think twice.

If there’s anything on these reports you’re unsure about, or feel is unfair, you can contact the agency to try and fix it.

Make some changes

Armed with your credit score and results, make sure your application and credit report are the best they can be.

That means paying off larger debts, updating your information and making sure you don’t miss a payment on other things like small loans, TV subscriptions or your mobile phone contract. Find out how to improve your credit score to help your chances of being accepted for a mortgage.

Rethink your borrowing

It’s worth having another look at what you can afford. Are you stretching your finances too far aiming to land that extra bedroom?

Consider whether you can give yourself a bit more wiggle room on monthly repayments. This could mean increasing your deposit or borrowing less by choosing a home that’s less expensive.

Once you’ve thought about all these steps and taken some time to sort out any problems, you’ll be ready to make another mortgage application.

The content on this page is for reference and does not constitute financial advice. For impartial financial advice, we recommend government bodies like MoneyHelper.

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