Being refused a mortgage on your dream home can feel like a hefty body blow. A refusal can throw everything up in the air as plans will need to be revalued. However, not all is necessarily lost. It’s important to keep positive so you can calmly discover what the reason is and what you can do to increase your chances next time around if you decide to apply again.

Reasons for mortgage refusal

Lenders have a certain criterion they use to make decisions on whether someone’s mortgage application will be accepted or rejected. They will review and assess all the information about you and your credit history, including the information that is submitted on the application form. And if you are an existing customer of the lender, they will also review your credit history with them. The lender will want to assess the risk and ensure that the person(s) to whom they are lending will be able to make their mortgage payments. A part of this assessment will determine if the borrower has sufficient financial breathing space in case of things like rising interest rates, and any unexpected financial emergencies that life can throw our way.

There will be some overlap between lenders’ criterion when assessing mortgage eligibility, but there will also be some difference between each one.

The more common reasons for refusal are:

• Recent history of missing or late payments. Struggling to keep up payments in one area indicates the likelihood of doing it for a more expensive things like a mortgage.
• A default of County Court Judgement (CJJ) in the past six years. A default occurs when a provider has closed an account for continuous missed payments and can apply to accounts like mobile phone payments or utility bills, etc.
• Incorrect information on the application form or documentation, such as a wrong address entered, or an expired passport.
• The lender has determined that you are at risk of not being able to meet the repayments based upon all of your income.
• You do not meet the target bracket for the kind of mortgage that you have applied for.
• You are not on the electoral roll for voting. This is an important means in which lenders can establish proof of ID and address.
• An excessive number of credit applications in a short space of time, with too many “hard searches” as a result. Hard searches is where a provider company makes a complete search of your credit report.
• Inability to provide evidence of consistent income, possibly due to self-employment or contract work. (This may become less of a problem with new digital finance systems – “Fintech” – coming online like blockchain).

Agreement in principle

Sometimes it’s possible to be refused a mortgage even after receiving an “agreement in principle.” An agreement in principle is provided by lenders after you have assessed the information about you and they consider it likely that you will be granted a mortgage when you need one, like after you have found the right property. It’s often necessary to have such an agreement in principle to view many properties because the agent knows you can move quickly on a sale.

However, this is not a guarantee by the lender, and if they later find something that doesn’t conform to their criteria after a more thorough search, they may then refuse a mortgage. It’s possible that you may be able to find out what the issue is by asking the lender. Alternatively, you could hire the services of a mortgage broker to give you a full assessment of your financial and credit information and suggest a mortgage that you have a better chance of being successful with.

Can my credit score be affected?

Your credit score won’t be directly adversely affected because of a mortgage refusal. Although a search of your credit report will reveal whether you have applied for a mortgage, it won’t say whether you were accepted or refused. However, if several attempts are made at applying for a mortgage, then this would leave more hard searches on the report, and as already noted, more hard searches could affect your chances of being accepted and lower your credit score.

What can you do after refusal for a mortgage?

You need to find out why you were refused a mortgage so that you can address the issue(s) for you next application; this would go a long way to help convince the lender that you are now mortgage ready. To avoid getting hard searches too close to each other, and therefore lowering your score, wait some time before your next application.

Not all lenders will divulge why they refused your application, but you can give it a go and ask.

If you get no joy with asking the lender, you can take a close look at your credit history to see if anything jumps out at you that may explain it.

You could also get a mortgage broker to look for you.

The main thing that mortgage lenders are looking for is evidence that you will be reliable in your monthly repayments. Unreliability in one area of your finances indicates that you will be unreliable in other areas. You can show evidence of this by making sure that you keep up to date with regular payments on things like mobile phone contracts, credit cards, and utility bills.

Check out our overview on applying for a mortgage to make sure you have ticked all of the boxes.