What happens when you get a Mortgage Agreement in principle but then your application is declined?
There is no definitive answer to this. There can be a number of different reasons which I will go through and after that we will look at what you can do.
Why was my mortgage declined after a Decision in principle
Some lenders will tell you why it has been declined, others will not. One of the things we would normally do is ask you to obtain a copy of your credit report as that would more often than not give us a good indication. But here are the most plausible reasons:
Not fitting criteria
A decision in principle checks a few basics:
- Are you working,
- Is your income enough,
- Are you passing a credit check etc.
The full application will go into more detail such as how long you have been employed for, do you own shares in the company you work for etc. It could be that something was missed and was not picked up at the Decision in principle stage. It could even be that the question was answered incorrectly at DIP stage – a good example here would be Limited Company directors. Some see themselves as being employed, but from a mortgage lenders perspective if your shareholding is more than around 25%, they would treat you as self employed. That could mean rather than needing to provide 3 months payslips, you actually need 2 years accounts.
Not passing affordability
This one in theory should have been picked up earlier in the process but it is possible to make mistakes here. The 3 most common mistakes here are:
Benefit income – On the face of it, it seems fairly easy but some lenders will only accept a percentage of benefit income or may not even accept any of it. If the benefits are in relation to your children (child benefit or child tax credits), if your children are over a certain age some or all of those benefits may be ignored.
Undeclared commitments – The main one here is loans for mobile phone handsets. Most people look at their monthly bill and see it as a contract but on your credit report it may appear as a loan for the handset element.
Bonus/Overtime etc – The way lenders calculate benefits and overtime varies. Some will use the last 3, 6 or 12 months payslips, P60s etc and also they may vary how they calculate bonuses depending on whether it is an annual bonus or a monthly one.
All in there is quite a lot to get wrong on the income and expenditure side of things if you are relying on more than just a basic wage.
This is the one that can be the biggest frustration. Everything fits, you have passed the credit check and then the underwriter who has picked up your application just does not like the application as a whole for one reason or another. What can you do? Well, you can appeal. It may get overturned, it may not.
With this type of decline. I think it is important to be honest with yourself. I always look at applications in the sense of “if I were an underwriter, would I agree this?” You have to consider that an underwriter does not know you. They have your application form and a credit report to go off.
You could find you fit affordability and have no bad credit but your deposit is from a gift, you are living in your overdraft and the property you want to purchase will be more expensive than your rent. As an underwriter you would have to look at that and think everything fits but the applicant has no spare money as it is, are we putting them in a worse position by agreeing the mortgage?
What should I do if my Mortgage has been declined?
There are things we can do. Criteria and affordability are usually the relatively easy ones to overcome. We can look for lenders where you fit criteria or have different affordability calculations.
But what about where there is nothing specific causing the problem? This is a little more complicated and the answer will vary from applicant to applicant. In the first instance we need to understand the issues.
We then need to be looking at what the situation will be like once the mortgage completes, will you be better or worse off? The mortgage may be £100 more each month, but you may no longer have to outlay £200 a month on train fares…
In short we can review your situation to see why you have been declined, we can then look to see if there alternative options.
If not, we may need to put a plan in place for the future or look at what is available now. We can discuss your situation and give you an accurate idea of what is possible with a 5-10 minute phone call.