Refused a Mortgage, What Now?
Being declined/refused mortgages or any financial product is frustrating. You’ll have had high hopes and already have made plans for your future.
Frustration is what follows that heart-dropping moment when you discover your hopes feeling shattered by having a mortgage perhaps agreed in principle and then later pulled from under your feet. What to do now is to get yourself clued up about the approval processes involving the bank, broker, underwriter, affordability tests and everything else that happens behind the scenes so you know what criteria you have to meet in order to be approved.
Chances are if you’re reading this, you’ll have been refused a mortgage. What next to do is read the entire page here to understand the mortgage approval and/or denial reasons and how to find out what’s caused your recent offer to fall through and increase your chances of approval BEFORE you apply to anywhere else.
When you’re refused a mortgage, help isn’t really what you need. What you need to be doing is ceasing any and all credit applications, and find out what exactly went wrong in the process to land you where you are.
Not all is lost, especially if you went through a bank to obtain a mortgage product directly. The intermediary mortgage market is much more accessible and you get specialist advice to access it through a broker service.
Our Refused a Mortgage Help Section to Help You Discover Why
Different lenders have different criteria and the way they meet their criteria is by using your credit report. Not every lender will use credit scores the same way as there’s no universal credit score that’ll make you suitable for any financial product. Lenders have distinct profiles for the customers they work with. Mortgage brokers are in a good position to help you after being declined/refused mortgages, simply because it’s their business to know the lending criteria of the partners they work with.
1st UK have access to a wide variety of market leading lenders which allows us to consider almost all lending applications. If you’ve been declined elsewhere we can almost certainly help you. Feel free to make an enquiry using the form below.
Understanding the lending criteria of whatever lender you approach
After being declined or refused a mortgage, never jump in with a second application to another lender before you get an interview with someone who can give you an insight into the reason you were declined.
As soon as you get word of being refused a mortgage from whichever lender you applied to, ask for an interview with someone. Numerous applicants find themselves faced with a declined mortgage nationwide and there’s always a reason for the denial, or mortgage offer withdrawal.
Sometimes that reason boils down to a simple data entry error. It might be your application was scanned into the banks system with some information omitted, or a data entry clerk at the bank pressed a 2 instead of a 3 at the section describing how long you’ve lived at your present address.
To eliminate the potential of any errors on the bank/lenders part, make an appointment to discuss their decision for refusing a mortgage and to give you an explanation of why they refused. If there hasn’t been an error during the application process, you’ll at least be closer to finding out why you were declined.
The least any advisor can do, after you’ve had a mortgage declined before completion of the sale, yet after an ‘agreement in principle’ (as often happens) is to grant you a meeting and discuss what influencing factor(s) resulted in the final decision to reject your application. You’ll need to ask for that appointment though.
Some of the most common reasons for being declined/refused mortgages include:
Not being on the voters roll (Electoral Register)
Even if you are on the Electoral Register, make sure your details are correct. Whenever you apply for a mortgage, you need to state your current residency, which is checked against the Electoral Register as a measure to verify you’re a UK resident. The Electoral Roll takes care of your Citizenship Status as only UK Citizens can take part in election processes. If your details listed on the Electoral Register differ from what you state as being your permanent address in the UK, it’s probable you’ll have your mortgage application rejected.
To check your details are accurately recorded on the voting register, you will need to check with your local Electoral Registration Office.
https://www.gov.uk/get-on-electoral-register – For England and Wales residents
http://www.aboutmyvote.co.uk/ – For Scotland
http://www.eoni.org.uk/Utility/Contact-Us – The Electoral Office for Northern Ireland
Payday loans impact your credit score more than you know!
Many people use payday loan services for fast cash to keep ahead of finances. What the firms providing these services don’t tell you is that whilst you may be borrowing to make a payment on time, preventing damage to your credit score – since 2011, the details of any registered payday loan firm will be recorded on your credit report.
Whether you pay it back on time or not and even if you do pay back on time, with no defaults reported, the fact that you’ve had to get a fast loan indicates to lenders that you’re not so good with money management.
You very well maybe and instead took a loan out for someone else, or even went through a joint application to help out a friend to access finance. It won’t matter though because if your credit report indicates any association with a payday loan company, lenders are going to question your ability to manage money efficiently. It will raise doubts.
If you have a history of this type of loan on your credit report, it will take six years before it’s removed. If it was back in 2011 the entry was placed, which is when credit reporting agencies begun to register this type of borrowing on reports, it’ll be able to be withdrawn sometime in 2017. As soon as your six years are up, request it be removed from your credit report. It’s doing no good there, even if showing as satisfied with no negative entries against it. Just the fact it’s a payday loan is enough to negatively affect your ability to access financial products.
You can have entries revised by contacting each credit reporting agency, but only after the six years have passed, at which point it should be removed anyway but just in case, request it is done.
Credit Reporting Agencies include:
There is a £2 fee for accessing your statutory credit report. This is an administration fee. Under the Data Protection Act, all companies are obligated to disclose to you the information they hold about you on file.
When you receive your credit reports, you need to be looking for anything negative like missed payments, unsettled accounts, CCJs, debt management plans, and any other entry that could deem you a high-risk to lenders.
In addition to how you manage your finances, you’ll also have a credit footprint that’s worth checking because this will also be looked at by lenders when you’re applying for a mortgage.
A credit footprint is not the same as your credit history. When an entry is made on your credit report, it remains there for six years after you’ve obtained the credit, and then any subsequent entries against that credit entry, such as defaults stay there for six years from the date of entry. The credit footprint though is entries on your credit file about every firm to search your history.
Each time you apply for any type of credit that results in the firm conducting a credit check through any credit reporting agency, it’s entered onto your credit file. Experian and Equifax will retain information about all credit searches done on your file over the past year, but in the case of CallCredit, they hold credit footprint information for two years.
This is why it’s not advisable to have multiple searches made on your credit files by applying for multiple financial products in a short space of time. If you do, your credit score will be negatively affected.
Note though, that the credit footprint is only affected when a hard check is done. Soft checks won’t always show.
The difference between hard and soft credit checks
If a lender runs a credit check on your files to make a lending decision, it’ll involve a hard pull, which means all information will be made available.
The more hard checks are done on your credit report, the lower your credit score will be.
- Hard credit checks lower your credit score
- Soft credit checks don’t affect your credit score
A soft credit check can be done by any company as part of their research. It won’t reveal enough information to make a serious lending decision though. You can also have soft checks done by your employer, by any company requiring to verify your identity, and even to receive those pre-approved offers you may receive in the post for credit cards.
Hard checks on your credit report should be limited to no more than two per year. In other words, once you’ve been declined for a mortgage, you only have one more shot at being approved within a year.
Soft checks, it doesn’t matter how many are done. Any time you’re considering applying for an account, find out if there’s a credit check going to be done, and if so, what type (hard or soft).
At the initial stages of application, always find out if the banks are going to run a soft or a hard check on your credit file. If it’s a soft check, don’t rely on the information especially for an ‘agreement in principle’ for a mortgage. A hard check is more reliable.
The majority of people who have been refused a mortgage after being offered an agreement in principle – the applicants will have gone through a mortgage broker. Many mortgage brokers will initiate a hard check on your credit file to get a more thorough insight into your financial background. The reason for this is because brokers work with multiple lenders and understand each of their partners lending criteria. By initiating a hard check on your credit file, they can better match your current financial situation, and credit score to the most suitable mortgage provider they know of.
For that reason, if you’ve had trouble obtaining a mortgage from a bank because of a declined mortgage in principle, get in touch with us. We work with a number of partners and this situation is something we’re very familiar with.
Joint applicants being denied mortgages
When you apply jointly, more weight is given to the person with the worst credit history so even if your own credit file is exemplary, it won’t matter. It also doesn’t matter who the main applicant and joint applicant are in the risk assessment process carried out by lenders.
When they’re assessing the level of risk they’re being asked to lend to anyone, they assess the worst-case scenario and that’s an application by someone with a poor credit history. If you feel that may be a reason for having been declined/refused mortgages, bad credit mortgages may be better suited to your circumstances.
The joint applicant with good credit will merely be considered similar to a guarantor. In the case of joint applications, both applicants should be reviewing their credit score. It might be that the income is being dismissed for one person therefore lowering the income you have for the affordability assessment purposes.
Your salary can result in you being a refused a mortgage
Since 2014, how income levels are assessed by lenders changed. It’s more than how much you have coming in. It’s about how much of that you spend as well. What results from the new affordability test is around three to five times your annually salary, or combined salaries in the case of joint applications. For people on lower incomes, perhaps £16,000, even as a couple thus doubling your household income, a mortgage of £135,000 wouldn’t meet the requirements of the mortgage affordability rules that came into effect in 2014. A mortgage declined on affordability is among the top reasons for rejection.
The best way around this problem is to lower the amount you’re applying for through a home loan by increasing your deposit amount. This results for the purposes of a bank’s lending criteria in a lower “Loan-to-Value”, which is simply that they’re lending out with less risk attached because the home is linked to your mortgage. If you default, the bank/lending institution has more possibility of getting their money back without losing out. Therefore, the more you deposit the less of a risk you’re asking any lender to take by granting you a mortgage product.
The type of property you’re asking the home loan for also matters
Take for example a mortgage for a home through the Right to Buy scheme, which gives discounts to public sector tenants. These are low risk because you’re asking for less finance than the home is worth and used for security against the mortgage. Lenders are keen for obvious reasons to provide finance of say £25,000 to help you secure your own home that’s worth £75,000 as an example. If you default on that loan, they can repossess and make good profit. Therefore, there’s hardly a financial risk. If on the other hand, you’re asking for £80,000 of a home loan to purchase a property valued at £85,000, the deposit is so tiny in comparison that the lender would assess it as providing full funding and therefore have a more rigorous approval process.
Work and employment history
It’s ideal to be in a stable career with as little gaps in your employment history as possible. However, that’s become a rarity these days, so what is expected is that you are working, and a have a stable job with a permanent employment contract. Part-time contracts can be considered provided there is a guaranteed element to the income you receive. Zero hour contracts are a problematic area for lenders when it comes to risk assessment, because under the terms of your contract, you could lose all your income and be left struggling to repay your mortgage and you would struggle to dispute any claims of wrongdoing by your employer.
Another group of people to regularly encounter problems accessing mortgages are the self-employed. It used to be easier before self-certification mortgages were banned.
If you’re self-employed now, you will need audited accounts, and detailed records going back for more than one year. Less than a year’s accounts and you will find it difficult accessing any mortgage product, with the exception being when you’re able to offer a substantial deposit.
Previous address history
The less you’ve moved around the better. A mortgage is a long-term home loan, often over a 25-year term. Whilst it doesn’t mean you’re committing to that home for the entire duration of the mortgage, it may be considered risky if you have a string of previous addresses all lasting under one year. When you’re asked for previous addresses, lenders want the history for the past three years. If yours shows you have had six previous addresses, all temporary Private Lets, lasting the minimum six-month term, it will be looked upon as suspicious.
It’s highly unlikely that six different landlords in succession would not approve the continuation of a lease. It indicates they’ve had tenant problems, such as non-payment of rent, trouble with neighbours, or perhaps even house-keeping in general. It’s not only your financial situation lenders need to consider in the risk assessment. It’s also your trustworthiness, notably to maintain the property, which is required in order to maintain the value of that property. Unmaintained properties will depreciate in value and therefore, put the lenders investment at risk and your own.
Having a Mortgage Declined after receiving an ‘Agreement in Principle’(AIP)
This is a painful process to go through, particularly if you’ve already paid fees upfront. The thing to always remember with an AIP is that it is not a legally binding agreement. People have had their mortgage declined by Natwest, Santander, and many other high street banks because the process isn’t fully explained to the customer.
What many people don’t understand is why they can be issued with an ‘agreement in principle’ and then have the bank pull the offer later, after building your hopes up.
As explained above about credit checks, there are two types, soft and hard checks. Most agreements in principle are only based on information obtained from a soft check because it’s not for the purposes of basing a lending decision. When the hard check is done, that’s when you can find yourself with the mortgage declined after offer of the mortgage was made ‘in principle’. Consider an ‘agreement in principle’ or as it’s known by some banks, a ‘decision in principle’ as a guidance note only. Never get your hopes up because of an agreement or decision in principle as the offer can be withdrawn.
The Hunters Database
When a soft check is used by the bank, it will not run a full history check nor will it cross-reference any information you supply with the Hunters Database, used for fraud prevention by banks and building societies. Where this can become problematic is perhaps if you’ve stated one set of figures with any lender, and then applied for any financial product and supplied different income information.
This could indicate that you’ve inflated or deflated figures in an attempt to match the lenders criteria to be approved. This could be that you apply for a credit card stating your annual household income as £16,000, then later, you apply for another loan or a credit application through a bank or building society and your income figures differ from the information held. It’ll flag as suspicious and you will be rejected the finance.
If you’re stuck wondering why you’re being declined/refused mortgages or any other financial products from a bank or building society, check the FAQ page of nhunter.co.uk to find out how to know what every bank and building society knows about you. Any mistake on any credit application could be flagged, in which case you’ll need to know and find out which lender placed your details onto the register. You’ll need to go to the firm who entered your details to have the entry reviewed for removal.
A mortgage declined by an underwriter
This is an issue when you apply for a mortgage directly with a bank or building society. Banks will always use mortgage underwriting as part of the risk assessment process. The main interest of the underwriting is assessing your risk of defaulting. You can find yourself full of hope due to the promising nature of what you’re told by a mortgage advisor in the bank, only to be declined on the basis the underwriter can’t approve your application because it doesn’t meet the lending criteria they use.
When any bank offers an agreement in principle, find out if it goes to an underwriter. Sometimes you can bypass the underwriter by lowering the risk to the bank by increasing your deposit amount. It depends on the banks’ lending criteria.
Having a mortgage declined by an underwriter is a gut-wrenching experience, but it’s not the be all and end all. It’s only an end to one application with one lender. And you’ll have taken a direct approach.
Consider this though…
Your entire spending habits and current debts are reviewed. If you’ve taken out a car loan over 24 months because you’re living with parents perhaps, so want to repay the finance faster, you can reshuffle that to extend the current loan terms and subsequently increase your disposable income.
This will be reflected on your credit files, but it won’t happen immediately. It’ll take a few weeks and you may have to chase up Experian, CallCredit and Equifax to have your files updated to reflect any current loan terms that have been updated. If you are reshuffling current debts in order to make a mortgage application more attractable to lenders, always request that the lender you’re working with submit the updated terms of your loan agreement to the credit reporting agencies as soon as possible.
The more disposable income you can show, the more attractive your application will be to lenders.
Mortgage Declined After Valuation
In many instances when you receive an agreement in principle, it will state that it’s subject to a valuation approval or similar wording. Lenders will want to have the property you’re intending to buy surveyed to ensure it is worth what you’re telling them its worth. What they don’t want happening is an applicant telling them the home is valued at £100,000 only to find it’s worth half that.
If you find yourself in the unfortunate situation of having a mortgage declined after valuation, it’s because of the difference between what the surveyor they use to value the home values it at, and what the seller states it’s worth.
About the Intermediary Mortgage Market
Not all banks are involved in the intermediary mortgage market, which means they work directly with consumers and exclude mortgage brokers. Often, you’ll find that banks and building societies offering the best deals will exclude the intermediary market for mortgage products, which enables them to get a high amount of applications from which they can cherry pick the best. When this is happening, it’s almost guaranteed that the mortgage underwriting process will be more stringent.
Where 1st UK Mortgages Can Help When You Are Declined a Mortgage
1st UK Mortgages have access to a variety of specialist lenders. We offer a free quotation service with no obligation and an advisory service available Monday to Friday 9am to 9pm.
All our Specialist Mortgage Brokers are CeMap qualified, and have a wealth of information about partner mortgage providers lending criteria. In many instances when mortgages are declined, the refusal is due to the information originally obtained at the initial application stage resulting in an ‘agreement in principle’ being issued.
As with many mortgage brokers, we are aware of variances of information obtained from the types of checks banks do and work to obtain the real information that’s used for a hard credit check that all lenders will use before approving any mortgage.
We always act on our customer’s best interest. Nothing is done without your full knowledge. We’re transparent in everything we do and work to ensure you’re always in the picture of what’s happening during your application process.
Our service is particularly useful to those who have been declined a mortgage at any stage of the application as our advisors can identify why things went wrong, and then work as advisors in the intermediary market to find a mortgage provider with lending criteria to match the circumstances of our customers.
Being refused a mortgage is common practice and it’s most certainly not a reason to give up hope on owning your dream home. Our team have an in-depth understanding of the mortgage market, access to whole-of-market mortgage products, specialist lenders and knowledge of the criteria our partners use.
Contact us today on: 0203 129 3081 or click here to request a call back. We aim to respond within 30 minutes during office hours.000