A declined mortgage application can be disappointing, particularly when a purchase, remortgage or property investment depends on the finance being approved.
However, one lender’s decision does not necessarily mean that every lender will reach the same conclusion. Mortgage providers use different affordability models, credit policies, property criteria and methods of assessing income and rent.
The important step is to understand why the application failed before approaching another lender. Submitting several applications without correcting the underlying problem can create further complications and unnecessary expense.
Establish exactly what has been declined
There is an important difference between an unsuccessful Decision in Principle and a mortgage application being declined after it has been fully submitted.
A Decision in Principle is an initial indication based on limited information and, in many cases, a credit search. It is not a mortgage offer. A full application involves more detailed checks of income, expenditure, credit history, deposit, property and supporting documents.
An application may also progress successfully through the initial assessment but encounter a problem when the lender receives the valuation or examines the property’s legal status.
Before taking further action, establish:
- Which stage the application reached
- Whether a hard or soft credit search was completed
- Whether the concern relates to the applicant or property
- Whether the valuation affected the decision
- Whether additional evidence was requested
- Whether the case was declined or simply did not meet a particular product’s criteria
This distinction helps determine whether the case can be reconsidered, corrected or placed with a more suitable lender.
Ask for the reason
The lender may not provide a detailed explanation of its internal credit-scoring system, but it should usually be possible to identify the broad reason for the decision.
Common reasons include:
- The requested loan is not affordable under the lender’s calculation
- Credit history falls outside the lender’s criteria
- Income cannot be evidenced in an acceptable form
- The deposit source is unacceptable or insufficiently documented
- Bank statements raise affordability or account-conduct concerns
- The property is unsuitable security
- The valuation is lower than expected
- Buy-to-let rent does not support the requested mortgage
- Portfolio information does not meet the lender’s requirements
- Information on the application conflicts with the supporting documents
Do not assume that the decline must be credit-related. An applicant with a strong credit record can still be declined because of affordability, property type, rental calculations or lender-specific policy.
Check all three credit reports
The UK’s main consumer credit reference agencies are Experian, Equifax and TransUnion. The information held by each agency can differ because not every organisation reports to all three.
Check the underlying entries rather than concentrating only on the headline score. Lenders make their own decisions and do not rely on one universal consumer credit score.
Look for:
- Incorrect names or addresses
- Accounts you do not recognise
- Missed payments recorded incorrectly
- Old accounts still shown as active
- Unexpected financial associations
- Defaults, judgments or insolvency information
- High credit-card balances
- Recent credit applications
- Electoral-register discrepancies
If the information is wrong, contact both the credit reference agency and the organisation that supplied it. Allow time for the matter to be investigated and corrected before making another application.
Checking your own credit report does not itself damage your credit record.
Review affordability honestly
A mortgage can be declined even when the proposed monthly payment appears manageable.
Residential lenders normally consider income, committed expenditure, household costs, dependants, loan and credit-card payments, childcare, maintenance and the possible effect of higher interest rates.
Different lenders may treat overtime, bonuses, commission, benefits, second-job income and self-employed earnings differently. One lender might average variable income over several years, while another may use a smaller proportion or exclude it.
Affordability may be improved by reducing unsecured debt, increasing the deposit, borrowing less or waiting until income can be evidenced more clearly. Taking a longer term may reduce the monthly payment, but it can increase the total interest paid and must remain acceptable for the applicant’s age and circumstances.
Do not conceal commitments or alter figures simply to produce a more favourable result. Inconsistencies between the application, credit report and bank statements can create additional concerns.
Investigate property and valuation problems
Sometimes the applicant is acceptable but the property is not.
A lender may decline or restrict a mortgage because of:
- Non-standard construction
- Significant defects
- A short or defective lease
- An unusual layout
- Commercial premises nearby or below
- Planning or building-regulation concerns
- Licensing problems
- Extensive refurbishment requirements
- Restricted resale demand
- A down valuation
For buy-to-let applications, the valuer may also report a lower market rent than expected. This can reduce the available mortgage even when the capital value is acceptable.
Applying to another lender will not necessarily resolve a genuine property or valuation issue. The borrower should first understand the valuer’s comments and decide whether further evidence, repairs, legal clarification or a different funding structure is required.
Buy-to-let applications need a separate review
A landlord mortgage may be declined because the rent does not satisfy the lender’s stress test, the landlord lacks the required experience or the property falls outside standard buy-to-let criteria.
Portfolio landlords may also be assessed across all their mortgaged rental properties. A lender could consider overall borrowing, rents, loan-to-value ratios, cash flow and the performance of the complete portfolio.
Limited-company applications can involve additional checks of the company, directors, shareholders, deposit source and proposed personal guarantees.
The correct response is not simply to submit the same case elsewhere. The application should be reviewed against the next lender’s complete criteria before it is submitted.
Avoid repeated speculative applications
Several applications in a short period can result in multiple credit searches. This may make future lenders question why the applicant is repeatedly seeking finance.
It can also lead to repeated valuation fees, delays and lost time while a property transaction continues towards an important deadline.
Before applying again:
- Confirm the original reason for the decline.
- Check the application for errors or inconsistencies.
- Review all three credit reports.
- Recalculate affordability or rental coverage.
- Examine the valuation and property comments.
- Gather any missing evidence.
- Match the corrected case to an appropriate lender.
Sometimes the best course is to wait. A larger deposit, reduced debt, longer trading history, corrected credit entry or completed set of accounts may materially improve the options.
Speak to NetRent before applying again
A mortgage decline should be investigated, not ignored.
NetRent Mortgage Solutions works with DNA Financial Solutions to help landlords, homebuyers and property investors understand why an application may have failed and identify the preparation required before another lender is approached.
We can help examine the applicant’s circumstances, property, borrowing requirement and available evidence so that the next application is directed towards a lender whose criteria are better suited to the case.
To discuss a declined mortgage application, contact NetRent:
Telephone: 01352 721300
Email: mortgages@netrent.co.uk
NetRent does not provide legal advice. This article represents our general understanding of the landlord mortgage and rental property market and is provided for information only.
Mortgage products, rates, affordability calculations and lender criteria can change. Individual circumstances vary, and appropriate mortgage, financial, legal and tax advice should be obtained before proceeding.