If your mortgage application is refused, it can be not only frustrating but also inconvenient, as it can slow down or even put an end to any plans you have already made.
Why have I been refused a mortgage?
When you apply for a mortgage, the lender will assess your application according to their criteria. To do this, they’ll look at information on your credit report, your application form, and anything they already know about you if you’re a customer. This helps them decide if you’re able and likely to meet the repayments. It’s worth noting that mortgage providers usually check that you can afford not only the deal you’re applying for, but also higher repayments in case interest rates go up.
Each lender has their own criteria, so there might be some things that would cause your application to be declined by one, but not by another.
These are some of the common reasons for being refused a mortgage:
- You’ve missed or made late payments recently
- You’ve had a default or a CCJ in the past six years
- You’ve made too many credit applications in a short space of time in the past six months, resulting in multiple hard searches being recorded on your report
- You’re not registered to vote on the electoral roll (this is used for proof of your address and identity)
- The lender has calculated you won’t be able to make the repayments
- You’re self-employed or are a contract worker and can’t prove you have consistent income
- There are mistakes such as incorrect addresses or other errors on your application form
- You may not fall into the target bracket for the type of mortgage you’ve applied
Mortgage declined after agreement in principle
An ‘agreement in principle’ is given by lenders to say that, based on basic information about you, they believe they would give you a mortgage if you applied for one. It can be useful to have an agreement in principle when you’re house-hunting, as it gives you an idea of what you can afford, and some housing agents will check you have one before letting you view property. But it doesn’t guarantee you a mortgage, and it is possible to be refused by a mortgage provider after they’ve given you an agreement in principle.
If this happens, it’s often because the lender found something that didn’t meet their criteria when they did a full search of your information. You may be able to find out what it is by asking the lender. You may also find it helpful to use a mortgage broker, who’ll be able to assess your financial and credit information and find a mortgage that’s likely to fit.
Does being declined a mortgage affect my credit score?
Being refused for credit won’t, in itself, hurt your credit score. Your credit report will show that you applied for a mortgage, but it won’t show whether you were accepted. However, being refused a mortgage can lead to more attempts to get one, and each application will leave a hard search on your report. Hard searches can lower your score and reduce your chances of acceptance.
What should I do after I’ve been refused a mortgage?
To give yourself the best chance of getting approved next time around, try to address the potential reasons why you were refused, and work on convincing lenders that you’re ready for a mortgage. Remember to spread out your applications over time, to avoid lowering your score.
Find out why you were refused
If you haven’t already, ask the lender why your application was declined. They might not give you answer, but it’s worth a try.
The next step is to look at your credit history, to see if you can spot anything that may have put the lender off. One way to do this is by checking your Experian Credit Report. You can order a copy of your statutory report in either digital or print format. Alternatively, you may want to sign up to a CreditExpert paid subscription, for tips on how to improve your score, report alerts about certain changes to your data, and full access to your report at any time.
Make yourself attractive to lenders
Mortgage providers need to know that you’ll be a reliable and responsible borrower. You can show them this by paying your regular payments (e.g. for credit cards, mobile phone contracts, and utility bills) on time and in full. You could also consider paying off existing debt if you can, and lowering your credit utilisation – this is the percentage you use of your available credit, and it typically helps your credit score to use no more than 25%. See more tips about how you may be able to improve your score.
Spread your money further
If you were declined a mortgage because the lender didn’t think you could afford the repayments, see what you can do to spread your money further – either by increasing the amount you earn each month or decreasing your living costs. You could also try to lower the amount you need to borrow by increasing your deposit – for example, you could plan how to save more, or use one of the Government’s Help to Buy schemes such as shared ownership, equity loan or ISA.
Apply with care and attention
Making mistakes on your application form can be a key stumbling block. Take your time to fill it out carefully - don’t just guess answers to questions, like how long you’ve lived in a property or how much your partner earns, and make sure that the address you give is the same as the one on your credit report.
Can you get a mortgage with bad credit?
Getting a mortgage with bad credit is possible, but you may need a larger deposit or a guarantor, as lenders may see you as more of a risk. It may also help to use a mortgage broker or financial advisor, to help you understand what you can afford and find a lender who’ll accept you – just remember that these professionals may charge fees, and some may not cover the whole of the market.
You may be able to improve your chances of getting the mortgage you want by increasing your credit score. You can get an idea of how lenders may see you by looking at your free Experian Credit Score – the higher it is, the better your chances of approval.
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