What to do if your mortgage is declined

The most common reason you might get declined is that you just don’t fit the lender’s criteria.

Each lenders assesses their mortgage applications differently. For example, some lenders ask for 3 months of bank statements, others for 1 month. Some won’t lend to you at all if you’ve been in your job less than a year. Some won’t offer mortgages on flats in high rises. The list goes on.

In those cases, hope is not lost – there are other lenders out there, with different criteria. This is where a mortgage broker can save you a lot of time: using their knowledge of each lender to match you only with lenders who are most likely to approve you.

Sometimes, you might find that no lender will lend you money, for example if your credit rating is really low. Try speaking to an independent financial adviser about what you can do.

Here’s a rundown of why your mortgage might be declined, and what to do about it.

Agreement in principle (AIP) declined

Ask your lender exactly why you were declined to see if there’s anything you can do to improve your chances next time (eg improving your credit score). AIP rejections aren’t often overturned, but the good news is there’ll be other lenders out there who might be willing to help.

Full mortgage application declined

If you don’t meet the lender’s approval criteria, or the lender discovers you have some bad credit history (like lots of payday loans or CCJs), your application might be declined – even if you have an agreement in principle already.

If you’re declined, try and find out the exact reason to see if there’s anything you can do for next time (eg fix errors in your credit record). It might be a good idea to get a broker involved: they can try and match you to the right lender.

Mortgage application declined after valuation

If your lender discovers the property you’re buying is worth less than the mortgage you’re applying for, they might ask you to increase your deposit so the numbers match. Or, they might decline your application entirely.

You could try showing your lender similar homes in the local area that have sold for more, or even hire a surveyor for an independent valuation (though this will cost a few hundred pounds, and they might come up with the same figure as the lender’s surveyor). Bear in mind that unfortunately, if a lender declines you it’s usually hard to overturn this decision.

Mortgage application declined after exchange of contracts

This is incredibly rare, but if you’re declined at this stage and the sale falls through, you could lose your deposit and it could end up costing you thousands. If that happens, it’s crucial to secure a new mortgage offer as quickly as possible – because once you’ve exchanged contracts you’re legally obliged to buy the house.

If you’ve been declined because the lender uncovers something you didn’t disclose, like a bankruptcy, or false information on your application form, you’ll usually have to swallow your losses. That’s why it’s so important to be as accurate and honest on your application as possible.

Finally, you can still get rejected at this late stage if your financial situation changes, eg you lose your job, or take out a high-interest loan. So try and keep your finances steady in the run-up to move-in day.

Mortgage offer expires before you complete

This can happen with new build properties that are still being built. You can pre-empt this by asking your lender for an extension of your mortgage offer. Give them a few weeks’ notice, and they should be able to extend your offer by a month or more (though they might ask you to supply more up to date income details later).

If your offer has already expired, you can usually re-apply for the same mortgage if it exists. Although there’s nothing stopping you from searching the market again to try and find an even better offer, if you have time. Remember there may be fees to pay again though – it’s a new application.

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