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Mortgage applications can sometimes be refused, which can be both frustrating and inconvenient. Indeed it was found in a report by the Consumer Financial Protection Bureau in 2022 that 9.1% of home purchase applications were denied and 24.7% of refinance applications were also rejected.

The reason you may have been refused a mortgage is often to do with failing to meet the lenders criteria. This guide will explain why you may have been refused a mortgage and what to do if this happens.


Why Have I Been Refused a Mortgage?


When you apply for a mortgage, the lender assesses your application based on their criteria. This includes looking at your application form as well as any information on your credit report to help them to work out whether you are likely to be able to meet their monthly repayment dates.

According to Rob Kettle, the Head of Operations at Deedle Finance, typically a mortgage provider will not only work out if you can afford the current deal that you have applied for, but also higher repayments at up to 3% interest.

There are a number of reasons behind being refused a mortgage. Some of which include:

  • Have missed recent payments for loans or a credit card
  • Having defaulted in the past six years
  • Having made too many credit applications in the past six months. These show up as hard searches on your credit report
  • You cannot prove that you have a consistent income stream. This may be because you are self-employed, freelance or a contract worker
  • You have made a mistake on your application form such as putting down the incorrect address


Why Was my Mortgage Declined After an ‘Agreement in Principle’?


An ‘agreement in principle’ refers to when a lender lets you know that based on the information that you have given them, they would likely give you a mortgage if you applied for one through them. Often, an ‘agreement in principle’ serves as a good way of showing you what you are able to afford, but it is important to note that it does not mean that the mortgage offer is guaranteed. As such, it is possible to be refused by a mortgage provider even if they have already given you an ‘agreement in principle’.

This may happen if the mortgage lender conducts their own full search of your information and has now found something that may not meet their criteria. You may be able to directly contact the mortgage lender to find out exactly what error this was.


What Should I do if I am Refused a Mortgage?


Will it Affect my Credit Score if I am Refused a Mortgage?


Being refused a mortgage will not affect your credit score. It will show up on your credit report that you had applied for a mortgage, but it will not show whether you were accepted. As such, while this may not necessarily impact your credit score on its own, it may lead you to apply for more mortgages.

Each mortgage application will end up leaving a hard search on your credit report, and the more hard searches you have, the more likely it is that your credit score will fall and you will not be accepted for future lines of credit or a mortgage.


What Should I do if I am Refused a Mortgage?


It is important to try and address the reasons as to why your mortgage application was refused, as this can help to give you the best chances of getting approved next time. It is additionally worth speaking to mortgage lenders directly to both convenience and prove to them that you are ready for a mortgage.

If you have been refused a mortgage, it is worth having a look at the following steps in order to rectify and overcome the issues ahead of your next anticipated mortgage application:


  • Find out why you were refused a mortgage

It is really important to question why your mortgage application has been declined. The mortgage lender in question is not required to answer, but it is always worth a try asking.

Another way is by taking a look at your credit history, analyzing whether there is anything specific that may have been flagged by the mortgage lender.


  • Work on making yourself more attractive to mortgage lenders

The ideal mortgage borrower is someone who can prove to a mortgage lender that they are both reliable and responsible. A way to do so is by making sure you can prove that you have been paying for your regular payments on time and in full, such as a mobile phone contract or monthly utility bills.

If you are able to, it is worth considering repaying off any existing debt too.


  • Spread your funds further

A mortgage lender might refuse your application because they did not think that you would be able to afford the monthly repayments. If this is the case, you should make efforts to try and spread your money further. This could include looking for a salary raise, or cutting back on your living costs and spending. This would then help you to lower the amount requested to borrow each month as you would have a greater amount of funds to put towards your deposit.


  • Take care and attention when applying for your next mortgage

Making a mistake on your mortgage application can cause the whole process to a halt. As such, it is worth taking lots of time and effort to fill out each answer carefully. Making guesses that may not be entirely accurate will only hold back your application further.

Furthermore, you must ensure that the address that you provide in your mortgage application aligns with the same one on your credit report.

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Ilana Koffman

Read expert articles from Ilana who has lots of experience in the financial world. Learn from her useful guides on loans, money, savings and lots more.