A rejection for a mortgage can feel like a huge knock back ,especially if you’ve already gone through the majority of the application and credit check process, only to be declined by an underwriter.
The guide has been written to help you understand what could have affected the underwriter’s decision as well as how to get back on track and prevent it happening again.
What is a mortgage underwriter?
An underwriter works for a bank or lender and it’s their job to thoroughly examine the perceived risk of the borrower.
You might have passed initial soft credit checks and may even have a Mortgage Agreement in Principle but that doesn’t guarantee final approval.
Once the property has been valued and an underwriter has carried out an in-depth review of your finances, you can then expect a decision.
The mortgage underwriting process
Your eligibility for the mortgage amount and your ability to meet your chosen lender’s criteria will be assessed here.
A credit check will provide further information to the lender about your history of credit and ability to meet financial obligations.
Lenders each use their own credit reference agency (CRA) so it can be helpful to be aware of exactly what’s on your report on each so that you can work to improve or remove negative credit incidents.
The process of applying for a mortgage also involves fraud and money laundering checks.
Fraud and money laundering checks during the mortgage process
Research by the UK’s leading fraud prevention service CIFAs, shows that fraudulent mortgage applications increased 5% in the first half of 2019 and that 45% of the fraudulent applications were from people aged between 31 and 40.
In fact, that same research found that 13% of adults in Great Britain think it is reasonable to exaggerate their income on a mortgage application.
Mistakes on a mortgage application, no matter how innocent, can be considered as mortgage fraud so it’s important that the information on your mortgage application is accurate and represents your current financial situation as openly as possible.
Inconsistencies in income, false information about your employment and even questionable payment references on your banking can all raise red flags for mortgage underwriters.
Mortgage deposits and fraudulent activity flagged by underwriters
Be prepared to answer questions about your transactions as well as provide evidence about the source of your deposit. If you’ve saved it yourself, lenders can prefer to see a steady transfer of deposits to a savings account or regular accumulation of money in your current account.
If you’ve received a gifted deposit, you will likely need to provide a letter from the person who gave you the money, as proof that the money is not a loan and that the person gifting it understands that it does not entitle them to any ownership of the property being purchased.
Property valuations during the mortgage underwriting process
Your chosen mortgage lender will also want to consider the type of property you’re planning on purchasing and it may come as a surprise that certain types of buildings can lead to a mortgage underwriter declining the application on the basis that you might not be able to afford the repairs and maintenance of the property.
It’s not just affordability for a certain property type that’s considered, it’s the use of the property too.
For example, if you were to apply for a residential mortgage, which is usually charged at a lower rate of interest in comparison to a buy-to-let mortgage, but have a clear intention to let it out, that would likely lead to a rejection.
How long does mortgage underwriting take?
Usually a week but this will depend on the experience of the underwriter and how many applications they have to process.
Sometimes a surge in demand for mortgages can cause a delay but your mortgage lender should let you know if they expect there to be delays.
Why do underwriters decline mortgage applications?
A mortgage is an agreement between the borrower and a lender and as with any loan, there is a risk to the lender for loss, in the event that the borrower fails to make their repayments on time and in full.
Concealing something about your credit history
If you’ve forgotten about some previous bad credit that is still looming on your credit report and you haven’t told your lender, this could be considered as concealing your credit history by providing false information.
Always be open and honest about your credit history to prevent delays or a mortgage rejection.
There may be a route for you to improve your credit history if needs be, in order to position yourself as a trustworthy borrower.
We have some short guides that include steps you can take to improve your chances of being approved for a mortgage:
Mistakes on the mortgage application
Even a spelling mistake on a mortgage application can cause a mortgage underwriter to question the validity of the application and whether there needs to be cause for concern about fraudulent activity.
Mortgage applicants can ask their mortgage broker to manage their paperwork, taking the task off their hands and leaving it in the capable hands of an expert whose job it is to make sure that a mortgage application is completed with precision.
A change in your circumstances
Always let your lender know of situational changes because it’s likely that they’ll find out during the application process and final checks anyway.
Your income and circumstances may have allowed you to comfortably meet eligibility criteria before but if you’ve had a change in your circumstances, like being put on the furlough scheme or experiencing a dip in your income, this could lead to a mortgage rejection.
Neglecting to tell them that you’ve changed jobs or been made redundant could result in the same outcome.
If you’ve been rejected for a mortgage because of a change to your circumstances, let us know and we can work to find you a solution.
Our brokers have access to over 90 lenders and multiple mortgage products and there may be one with criteria that is more accommodating to your new financial situation.
An extensive analysis on risk
Much like after the financial crash of 2008 which caused lenders to tighten lending criteria and apply stringent stress tests, the events of 2020 did cause a temporary tightening of mortgage criteria.
UK banks and lenders reduced their range of mortgage products and restricted lending to borrowers that were able to meet affordability criteria.
The range of products has increased and banks including Nationwide have even applied a lower stress rate, indicating an easing of extensive analysis of risk.
It may be the case that where previously, you would have been rejected by an underwriter after a stress Test of your current and future income, your circumstances as well as the adjustment of lending criteria could now result in approval.
Find a lender whose criteria you can confidently meet
Applying for a mortgage with criteria that has, for example, a minimum income threshold which you don’t quite meet, will likely result in a rejection.
A broker can carefully analyse the terms and conditions of a mortgage agreement before you apply, to assess, in their professional opinion, the likelihood of any issues or questions arising surrounding your affordability and subsequently, your ability to get approved.
Does a mortgage rejection affect my credit score?
According to Experian, a mortgage rejection appears on your credit history for other lenders to see but the rejection itself won’t bring down your credit score.
Your credit history, including your score on the various credit reference agencies, is a factor that can affect your eligibility for any loan, including a mortgage and underwriters may look at how many times you’ve applied for a mortgage or loan and in what space of time.
Multiple applications for mortgages, loans, credit cards and even Klarna and other BNPL schemes, can suggest to future lenders that you might not have the best money management skills.
Avoid applying to multiple lenders and always check your eligibility for a financial product thoroughly before signing an agreement or giving consent for a hard credit check.
What to do next if you’ve been declined by an underwriter for a mortgage
Appeal the decision
Once your application has been declined, you can appeal the decision. Unfortunately, even with additional and sufficient evidence to support a positive decision, appealing an underwriter’s decision usually proves fruitless.
Underwriters carefully analyse the circumstances of a mortgage applicant against the terms of the applied mortgage product looking at:
Your credit history and credit score
The property being financed with the mortgage
Your affordability for the mortgage now and in the future if your circumstances were to change
Ask a specialist what they think
If you have been rejected at the AIP or the underwriting stage, ask a broker to look at your circumstances and advise you on your next steps, whether that be an appeal or an application in the future with a better suited lender.