Why was my mortgage declined?

Has your mortgage application been declined? If so, don’t panic. By understanding why you were rejected, there are steps you can take to boost your chances of approval next time.

Being declined for a mortgage doesn’t have to mean the end of your home-buying dream. If you don’t meet one lender’s lending criteria, it doesn’t necessarily mean every lender will say no. 

Read this guide to help you understand why your application might have been turned down and what you can do to increase your chances of a successful application next time.

Why has my mortgage application been declined?

Your mortgage application might be declined because:

  • your personal circumstances didn’t meet the lender’s criteria

  • the lender wasn’t happy with the property you are buying

But every lender will have different criteria – so a rejection from one lender doesn’t necessarily mean you’ll be declined elsewhere too.

Why would I be declined for a mortgage?

A mortgage lender might decline your mortgage application if you:

  • failed the affordability assessment

  • don’t have sufficient income for the loan applied for

  • haven’t provided evidence of your income

  • have too low a credit score 

  • have too much debt

  • have used payday loans recently

  • are not on the electoral roll

  • don’t have a big enough deposit

  • are self-employed

Why would a particular property be declined for a mortgage?

A mortgage lender might turn down an application for a particular property because the property:

  • has a short lease (if leasehold)

  • isn’t proven to be fire safe

  • is a flat in a high rise block

  • is built from non-conventional materials

  • has been down-valued by the lender’s valuer

  • is not habitable

What should I do if my mortgage application has been declined?

The first thing you should do if your mortgage application has been declined is find out why. 

Knowledge is power – knowing what went wrong will give you the opportunity to put things right.

In many cases, you may be able to make a successful application with a different lender.

Mortgage declined on affordability

Affordability assessments differ between lenders. Some will include bonus payments or commission, while others don’t. 

Since 2014, mortgage lenders have had to carry out much more stringent checks regarding the affordability of a mortgage.

As well as looking at your income, a lender will look at your outgoings when assessing your application. It will ask for 3 to 6 months of payslips to see what you spend your money on. 

As well as looking at household bills, debt repayments, childcare costs and other financial commitments, the affordability assessment will look at your discretionary spending. To boost your chances of being approved for a mortgage, you should cut down your spending on things like holidays, socialising, online gambling, and eating out.

If you have multiple sources of income, or are self-employed, a mortgage broker will know which lenders are best to approach.

In some cases, you may have to put down a bigger deposit to afford the mortgage. 

Mortgage declined due to bad credit

There are several steps you can take to improve your credit score

For example, you can pay off debts, close unused lines of credit, pay bills on time, correct mistakes on your credit file, and make sure you are on the electoral roll.

You can check your credit score and credit history with any of the three credit reference agencies in the UK. They are:

  • Experian

  • Equifax

  • TransUnion

You can ask the credit reference agencies to correct any mistakes on your credit file.

A broker can suggest lenders who lend to borrowers with poor credit. 

Mortgage declined due to too much debt

Your mortgage application might be declined if you have too much debt.

Before you apply for a mortgage, try and pay off loans and credit cards, and avoid dipping into your overdraft if you can afford to.

The use of payday loans, in particular, could cause your mortgage application to be declined.

Payday loans are a type of short-term high cost credit. Any payday loan you’ve had over the past 6 years will be listed on your credit file, even if you’ve paid it off on time. 

Lenders don’t like payday loans as usage suggests financial difficulties or desperation to borrow money.

Mortgage declined because you are self-employed

Self-employed borrowers will need to prove their income to the mortgage lender.

To do this you normally need at least the past 2 years’ accounts – but the more years of accounts you have showing a decent profit, the better.

You will also need to show SA302 forms and a “tax overview” from HMRC for the past 1 to 3 years (depending on the lender). 

A mortgage broker will be able to suggest lenders which look favourably on applications from self-employed workers, and the required documentation.

Mortgage declined due to an issue with the property

Each lender will have different criteria about the types of property considered adequate security for a loan.

If you are buying a flat, a leasehold property or a property built from non-conventional material, a broker will be able to tell you which lenders are most likely to accept your application.

If the property is not habitable, you may be able to get a renovation mortgage to borrow the money to make the property liveable.

Can a mortgage be declined after an agreement in principle?

An agreement in principle is a guide of how much a lender would be prepared to lend you based on some basic information and a soft search of your credit report. 

But it’s not a guarantee. When a lender carries out a more in-depth affordability assessment or a hard search of your credit report, it may decide not to lend to you.

A lender’s affordability assessment might discover high outgoings or financial commitments such as childcare costs, car finance or debt repayments.

A hard search of your credit report might reveal missed debt or bill payments, too many credit applications in a short space of time, or high utilisation of existing lines of credit. 

Can a mortgage be declined by an underwriter after a valuation?

An underwriter might decline your mortgage application after a valuation because:

  • the underwriter thinks the property isn’t worth the purchase price

  • the property valuation mean your loan exceeds the maximum loan-to-value permitted

  • there are doubts about the property’s suitability for a loan

  • the property needs repairs

If your application is declined after a valuation, you could try:

  • renegotiating the purchase price with the seller

  • putting down a bigger deposit

  • trying a different lender

Can a mortgage be declined after exchange of contracts?

It’s unusual for a mortgage to be declined after offer or after you’ve exchanged contracts.

However, it can happen if:

  • the lender discovers something you failed to disclose on your application

  • you lose your job or your circumstances change

  • the lender suspects you are involved in crime or fraud

  • you don’t complete the purchase before the mortgage offer expires

Your mortgage being rejected after exchange of contracts can be very expensive. This is because you are legally committed to purchasing the property at this point and you will forfeit your deposit if you don’t complete the purchase.

How long should I wait before re-applying if my mortgage is declined?

While you can apply for another mortgage straight after you’ve been declined, it’s generally advisable to wait at least 3 months. 

You can use this time to find out the reason your application was declined and take steps to put yourself in a better position for the next time you apply.

Too many declined mortgages will affect your credit score.

A mortgage broker will be able to advise you about when you should re-apply, and to which lender.


10th October 2020