What to do if your mortgage is declined?

Facing a mortgage decline can be distressing and worrisome. Studies indicate that approximately 10% of mortgage applications are declined.

However, it’s important to remember that there are other options available if your mortgage application is declined, as most mortgages can be obtained from other lenders.

In this guide, we’ll outline some common reasons for mortgage declines, provide tips on how to potentially avoid them, and offer guidance on what steps to take if you find yourself in this unfortunate situation.

At what point can a mortgage be declined?

A mortgage can be declined at various stages of the mortgage application process, depending on the lender’s policies and criteria. Here are some common stages at which a mortgage application can be declined:

  • Mortgage brokers: may decline a mortgage application even before submitting it to a lender for an Agreement in Principle (AIP), based on their assessment of the borrower’s eligibility using lender criteria and affordability calculators.
  • Agreement in Principle (AIP): An Agreement in Principle, also known as a Decision in Principle or Mortgage in Principle, is an initial assessment by the lender based on limited information provided by the borrower. It is not a guarantee of a mortgage offer and the lender may decline the application after conducting a more detailed review.
  • Full application with hard credit check: After receiving an Agreement in Principle, the borrower submits a full mortgage application, which typically includes a hard credit check. The lender assesses the borrower’s creditworthiness, financial situation, employment and income details, and other relevant factors. If the lender determines that the borrower does not meet their eligibility criteria, the mortgage application may be declined.
  • Underwriting: Once the mortgage application passes the initial assessment, it goes through the underwriting process, which involves a more detailed review of the borrower’s financial documents, such as bank statements, tax returns, and employment history. If the lender identifies any issues, such as insufficient income, high debt levels, or other risks, they may decline the mortgage application.
  • Valuation: As part of the mortgage application process, the lender typically requires a valuation of the property to assess its market value and suitability as collateral for the mortgage. If the valuation report indicates that the property does not meet the lender’s requirements, for example, if it is overvalued or has significant structural issues, the lender may decline the mortgage application or revise the loan terms.
  • Unsuitable lender: If a mortgage application is not placed with a suitable lender that aligns with the borrower’s financial situation and creditworthiness, it could result in a decline.

Why have I been refused a mortgage?

When your mortgage application has been declined, it’s crucial to understand the reasons behind the decision. This will allow you to identify and address any issues that may have contributed to the decline.

In the UK, a mortgage application can be declined for a variety of reasons. Some common reasons include:

  • Adverse credit: If the mortgage applicant has a history of late payments, defaults, County Court Judgments (CCJs), Individual Voluntary Arrangements (IVAs), bankruptcy, or other negative credit events, it may impact their credit score and result in a mortgage decline. Lenders typically assess the creditworthiness of an applicant based on their credit history and credit score.
  • Unsatisfactory conduct on bank statements: Lenders may review the bank statements of an applicant to assess their financial conduct, including their spending habits, debt levels, and ability to manage their finances. If the bank statements reveal irregularities, such as bounced checks, overdrafts, or excessive gambling, it could be considered unsatisfactory conduct and result in a mortgage decline.
  • Undeclared credit commitments: Lenders assess an applicant’s affordability by considering their existing credit commitments, such as loans, credit cards, and other debts. If an applicant fails to disclose all their credit commitments or provides inaccurate information, it may lead to a mortgage decline as it could affect their ability to repay the mortgage.
  • Valuation issues: Lenders typically require a valuation of the property being mortgaged to assess its market value and determine the loan-to-value (LTV) ratio. If the valuation report indicates that the property is overvalued or has significant issues, such as structural defects or inadequate security, the lender may decline the mortgage application or offer a lower loan amount.
  • Fraud: If there is evidence of fraud or misrepresentation in the mortgage application, such as providing false information about employment, income, or other material facts, the lender is likely to decline the application. Fraudulent activity can result in severe legal and financial consequences.

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What should I do if I’ve been declined by a mortgage?

If you have been declined by a mortgage lender, here are some steps you can take:

  • Don’t panic and stay calm: Receiving a mortgage denial can be stressful, but it’s important to stay calm and not make impulsive decisions.
  • Understand the reason for the denial: Ask the lender for a clear explanation of why your mortgage application was declined. This will help you identify any issues that need to be addressed.
  • Get a copy of your credit report: If you haven’t already, obtain a copy of your credit report  to review for any errors or discrepancies that may have contributed to the denial. If there are any inaccuracies, you can take steps to correct them.
  • Consult with your mortgage broker: If you were working with a mortgage broker, they may be able to provide alternative options. They can explore other lenders or mortgage products that may be more suitable for your financial situation.
  • Consider a larger deposit or borrowing less: If the lender has suggested that a larger deposit or borrowing less may make your mortgage application more favorable, you can explore these options to increase your chances of approval.
  • Look for alternative lenders: If one lender has declined your application, it’s worth exploring other lenders who may have different criteria or requirements that better align with your financial situation.
  • Consider clearing credit commitments: If your credit commitments, such as outstanding debts or loans, are affecting your affordability for a mortgage, consider paying off or reducing these commitments to improve your chances of approval.
  • Appeal the decision with the lender: If you have reasonable grounds, you may be able to appeal the lender’s decision. Provide additional documentation or evidence to support your case, such as proof of income, employment stability, or other relevant information.
  • Appeal a valuation: If the lender’s decision was based on a property valuation that you believe is inaccurate, you may be able to appeal by providing comparable evidence to support your claim.

It’s important to take a proactive approach and work with your mortgage broker and lender to understand the reasons for the denial and explore alternative options.

Does being declined a mortgage affect my credit score?

Being declined for a mortgage can have an impact on your credit score. When you apply for a mortgage, the lender will typically conduct a credit check, which can leave a “footprint” on your credit file. This footprint indicates that you have applied for credit and may affect your credit score, depending on the type of credit check conducted.

Some mortgage lenders may conduct ‘soft credit checks’ for initial “agreement in principle” (AIP) assessments, which typically have a minimal impact your credit score. However, when you proceed with a formal mortgage application, most lenders will conduct a hard credit check, which can have a more significant impact on your credit score.

It’s important to understand that a declined mortgage application is not necessarily a show stopper, However, it’s also important to be aware that multiple hard credit checks and declines can negatively impact your credit score and may affect your ability to obtain credit in the future.

I’m self-employed and struggling to get a mortgage

Yes, you are correct. If you are self-employed, there are specific reasons that can potentially lead to a declined mortgage application. These may include:

  • Vastly fluctuating income or reducing income: Mortgage lenders typically assess the income stability and affordability of self-employed borrowers. If your income fluctuates significantly or has reduced over time, it may impact your ability to qualify for a mortgage.
  • Lack of cash flow and income on bank statements not reflective of income declared on tax returns. Lenders often review bank statements to assess your business’s cash flow and income. If the income reflected on your bank statements does not align with the income declared on your tax returns, it may raise concerns for the lender and result in a declined application.
  • Insufficient profit in the company to pay salary or dividends: Lenders may assess the profitability of your business to determine your ability to repay a mortgage. If your business does not generate sufficient profit to pay yourself a reasonable salary or dividends, it may affect your mortgage application.
  • Unpaid tax bills: Unpaid tax bills or outstanding tax liabilities can raise red flags for lenders, as it may indicate potential financial instability and impact your ability to qualify for a mortgage.
  • Changes in company structure and insufficient trading history: If your business has recently undergone changes in its structure, such as a change in ownership or a switch from a sole proprietorship to a limited company, or if your business does not have a sufficient trading history, it may impact your mortgage application.

         I didn’t apply, I was just told I wouldn’t get a mortgage 

Mortgage brokers can help you assess your eligibility for a mortgage by checking lender calculators and criteria before submitting an agreement in principle (AIP). This can help you determine your likelihood of approval without having a hard credit check conducted, which can impact your credit score.

What should I do if my agreement in principle was declined?

Just like if your mortgage application is declined, you should check your credit report, explore other lender options, and consider a larger deposit or smaller borrowing amount if there are no alternative options.

Declined a mortgage after a property survey

if your mortgage application is declined based on the survey of the property, there are several options you can consider depending on the reason for the decline. These may include:

  • Increasing your deposit and borrowing based on the bank’s valuation: If the survey resulted in a down valuation, you may be able to increase your deposit to bridge the gap between the purchase price and the valuation, and borrow based on the bank’s valuation instead.
  • Renegotiating the price of the property: If the survey revealed issues with the property, such as damp or structural concerns, you may be able to renegotiate the price with the seller to account for the necessary repairs or improvements.
  • Remedying the issues and booking a re-inspection: If the survey identified issues that can be remedied, such as damp or other repairable problems, you may be able to have the necessary works completed and book a re-inspection to demonstrate that the issues have been resolved.
  • Applying with another lender: If one lender has declined your mortgage application based on the survey, you may consider applying with another lender who may have different criteria or assessment process, and hope for a different outcom
  • Appeal: If the mortgage is declined based on the survey, you could appeal with the lender and provide comparable evidence. More often than not, appeals are unsuccessful, but it’s not unheard of and certainly worth trying.

Mortgage declined on survey due to unsuitable property type

Some lenders may decline a mortgage application due to the property type being deemed unsuitable or not meeting their lending criteria. For example, certain lenders may have restrictions on lending for properties such as studio flats below a certain size, high-rise or ex-local authority flats, or properties with non-standard construction. In such cases, it may be possible to explore alternative options with other lenders who have more lenient criteria for the specific property type.

How long should I wait before I apply for a mortgage again?

There is no set time frame for waiting to reapply for a mortgage after a decline, and it will depend on the nature of the decline and the reason for the bad credit. Some lenders may be more favorable to certain situations than others, and it’s possible that you were just unlucky with the first lender.

If you are waiting for your credit to improve, it’s important to note that it is not an overnight process. The timeline for credit improvement will depend on the reason for the bad credit and your efforts to rectify it. Generally, it’s recommended to wait for at least 3 months to see some improvement in your credit score, but this can vary depending on individual circumstances.

Can I get a mortgage with bad credit?

Yes, it is possible to get a mortgage with bad credit, although it may be more challenging. Lenders may consider factors such as your credit score, income, employment history, and other financial circumstances when evaluating your mortgage application.

However, you may need to provide a larger deposit, pay higher interest rates, or meet additional requirements.

Can I get a refund on my valuation fee if I’ve been declined on a mortgage?

In many cases, mortgage valuation fees are non-refundable, and it’s important to be aware of this when applying for a mortgage.

However, some lenders may offer free basic valuations as part of their mortgage packages, which can help reduce costs. Additionally, some lenders may allow you to put a hold on the valuation if your mortgage application is declined, which can help avoid unnecessary fees.

How can Strive Mortgages help

Working with a mortgage broker like Strive Mortgages with experience and knowledge of various lenders and their lending criteria can be a valuable resource in minimising the chances of mortgage decline.

We can assess your unique situation, including the property type, credit history, and financial circumstances, and identify lenders who are likely to consider your application positively.

In the event of a decline, we will proactively work with you to explore alternative options, such as finding other lenders who may be more suitable or suggesting ways to address any issues that led to the decline. Our expertise and guidance can increase your chances of obtaining a mortgage successfully.

For more info on if your mortgage is declined, please contact a member of the Strive team, by emailing info@strivemortgages.co.uk or call us on 01273 002697.