April 2024
Mortgage Declined After Agreement In Principle – What Happens Next in April 2024
It can be very frustrating when you’ve been told you have an Agreement in Principle (AIP) for a mortgage, only to have your mortgage in principle declined when you make a full application.
If your mortgage approval falls through, it’s generally because the lender found something that didn’t meet their own criteria when they did a full search of your information.
Here’s what you need to know if this happens to you.
What is an Agreement in Principle?
An AIP mortgage is not a guarantee that you’ll get the mortgage – it’s simply a statement from the mortgage lender saying that, in principle, they’re willing to lend you a certain amount of money.
There are numerous factors that will be considered by the mortgage lender before they give you an AIP, including your credit history, employment status and income.
However, it’s important to remember that an AIP is not a full application, so the mortgage lender may ask for more information or documents before they make a final decision. The lender retains the right to withdraw or offer you a different mortgage amount or mortgage product (and interest rate).
Topics that you will find covered on this page
When should I seek an agreement in principle?
It’s a good idea to get an agreement in principle before you start house-hunting, especially if you are self-employed or have unusual financial circumstances. Though it is not legally binding, it will give you an idea of how much money you could borrow and what kind of property you can afford.
Having a mortgage agreed in principle will prove to estate agents that you are serious buyers.
It’s also worth getting a mortgage approval in principle if you’re not sure which mortgage lender you want to apply to, as it will give you a chance to compare mortgage offers.
How do I get a mortgage in principle?
Most mortgage lenders will have an online application form that you can fill in, or you can consult a mortgage advisor who will help you through the mortgage application process.
With an AIP, you’ll primarily be assessed by a lending multiplier that is applied to your income.
What will happen after I get an agreement in principle?
If you’ve received an AIP with which you’re happy, you can start looking for a property within your budget. Once you’ve found a suitable property, you’ll need to make an offer, which will be subject to the lender approving your mortgage application.
The mortgage lender will subsequently undertake a more detailed assessment of your finances, and they may ask you for additional information or documentation at this stage. If everything goes well, your mortgage should be approved, and you’ll be able to move into your new home.
However, if the lender decides not to approve your mortgage application, it’s likely that they will give you a reason why. The most common reasons for rejection are concerns about employment status, income or bad credit.
If this happens, don’t despair – there are usually options available to you.
What should I do if I’ve been refused a mortgage?
If your mortgage is declined after an Agreement in Principle, the first thing you should do is speak to your broker or lender to find out why your mortgage agreement in principle has fallen through. They will be able to provide advice to you on what steps to take next and whether there are any other options available to you.
In some cases, it may be possible to reapply for a mortgage agreement in principle with the same lender if the decline was due to an error on their part. Alternatively, you could try applying for a mortgage with a different lender.
It’s important to compare different deals before you make a decision, as each lender has its own lender criteria for approving mortgage applications.
Why have I been refused a mortgage after an AIP?
There are a number of different reasons why your mortgage application may be declined, even if you have already have a mortgage agreement in principle in place. Some of the most common reasons include:
Your credit score has changed
If you’ve applied for credit (such as a loan or credit card) since getting your AIP, this could affect your credit score and, as a result, your ability to get a mortgage as lenders will do a thorough search of your credit file.
If you’ve had issues making monthly payments in the last six years, this will be on your credit report.
Your employment status has changed
"If your mortgage approval falls through, it's generally because the lender found something that didn't meet their own criteria when they did a full search of your information."
If you’ve changed jobs recently or had a significant change in income since getting your AIP, this could affect your eligibility for a mortgage.
The lender has changed their lending criteria
Mortgage lenders are constantly changing their internal criteria for approving mortgage applications, so it’s possible that the lender’s individual criteria have changed since you received your AIP.
It’s worth noting that mortgage providers usually check that you can afford not only the deal you’re applying for but also higher repayments in case interest rates go up.
Lack of consistency or discrepancies
If there appear to be any discrepancies or inconsistencies in the information you’ve provided, this could be seen as an indicator of financial stress and lead to you having your application for a mortgage declined.
For example, if your bank statements evidence that you have undeclared payday loans or less income than you declared on your application form, this may reduce your mortgage affordability and be cause for a declined mortgage in principle.
Missed payments or arrears
The occasional missed payment may not be an issue for most lenders. However, missed payments on your current account or payday loans can cause inconsistency or discrepancies in your financial and payment history or appear on your credit report, which may lead to you having your application for a mortgage declined.
You may be declined your mortgage application if you miss any payments on your current credit agreements or default on any credit agreements between the time you obtained a mortgage agreement in principle and the time you applied for your mortgage.
Taking out a new line of credit
Even if you don’t have a bad credit history, if you’ve taken out a new line of credit, such as a loan or credit card, this will appear on your credit report and could affect your ability to get a mortgage.
Additionally, if a mortgage broker sees on your credit report that you’ve made too many credit applications or that you’ve borrowed from a payday lender, it might take this as a sign that you’ve experienced severe money problems or have too much debt.
Financial Associations
If you have any kind of financial association with someone who has a bad credit rating, this will appear on your credit reports and, as a result, could impact your mortgage application.
Information held at a different Credit Reference Agency
Each mortgage provider will use different Credit Reference Agencies, such as Experian or Equifax), so there’s a possibility that the particular lender you’ve applied to hasn’t previously had access to all of the information about your credit history they need to make a decision.
For instance, if the lender only carried out a soft credit check for your AIP, they may not have seen your entire credit report. Other information may come to light in hard searches for your actual mortgage application.
What information is checked for an Agreement in Principle versus a mortgage application?
An Agreement in Principle (AIP) is a document that states how much you could borrow from a lender based on a preliminary assessment of your financial situation.
A mortgage application is a more detailed assessment of your finances, including a thorough credit file check. The lender will also verify your employment status and income.
Does being declined a mortgage affect my credit score?
If your mortgage application is declined, this will not automatically lower your credit score.
However, if you make a number of applications with different lenders in a short space of time, this could impact your score.
It’s important to remember that each time you apply for credit, the majority of lenders will undertake a hard search of your credit file, which will appear on your credit report and could temporarily lower your score.
What are my rights if I’ve been refused a mortgage?
If you’re declined for a mortgage after an AIP, you should be given a reason why you haven’t met the lender’s criteria. If they don’t, you can ask them to explain their decision.
You also have the right to appeal the decision if you think it was made in error. If you are still not satisfied with the outcome, you can make a complaint to the Financial Ombudsman Service.
How do I make a complaint to the Financial Ombudsman Service?
If you’ve been refused a mortgage and you’re not happy with the way your complaint has been handled, you have the right to make a complaint to the Financial Ombudsman Service.
The Financial Ombudsman Service is an independent organisation that settles disputes between financial services businesses and their customers.
You will need to complete a form on the Financial Ombudsman website to make a complaint. You can also call them on 0800 023 4567 or 0300 123 9123.
How can I make sure I don’t get declined for a mortgage?
There are a few different things you personally can do to make sure you don’t get declined for a mortgage and to make yourself more likely to get a mortgage offer:
Make yourself attractive to lenders
Before you begin to apply for a mortgage, ensure you’re as attractive to lenders as possible.
This means ensuring you don’t have a poor credit history, a steady income and a healthy deposit. You should also ensure that you have all the information you will need to hand (e.g. income information, spending records, previous addresses).
Spread your money further
If you’ve already been declined for a mortgage, you might want to consider applying to more than one lender. Applying to more than one mortgage provider means you’re more likely to find a lender that’s willing to lend to you and get a mortgage offer.
Use a mortgage broker
Mortgage brokers can help you find the right mortgage for your personal circumstances and give you tailored advice on how you can improve your chances of being accepted.
You may also wish to consult a mortgage advisor.
Apply with care and attention
When you feel like you’re ready to apply for a mortgage, make sure you do it carefully. This means double-checking all of the information you provide and ensuring that everything is up-to-date.
Check your credit score
You can check your credit score free of charge online on sites like Experian and Clearscore. If your score is low, there are things you can do to improve it.
Save up a large deposit
If you have a bigger deposit, you pose a lower risk to mortgage lenders and therefore you are more likely to be approved for a mortgage. Try to aim for at least 15% of the property value.
What should I do if I’m declined for a mortgage?
If you’re declined for a mortgage, there are a few things you can do:
- Try to find out from your lender why you were declined and correct any errors or discrepancies
- Compare deals from other lenders to see if you can find a more suitable deal
- Speak to a mortgage broker who may be able to help you find different mortgage lenders that’s willing to lend to you
- Consider alternative borrowing options, such as a guarantor mortgage or a family offset mortgage
Remember, you can be refused for a mortgage by lenders at a number of different stages: when you first apply, when your application is being processed and even after you’ve got a mortgage agreement in principle. If you’re declined for a mortgage, don’t give up – there are still plenty of options available to you.
If you’re having difficulty getting a mortgage for any reason (for example, if you are self-employed), there are also a number of government schemes which could help you, such as Help to Buy or Right to Buy, an equity loan or ISA.
You may also want to try specialist lenders who could offer other options, such as a guarantor mortgage, where someone else agrees to cover the repayments if you can’t. These are great if you are self-employed or in a precarious financial situation.
Get mortgage advice from your mortgage broker or mortgage lender as soon as possible if you’re worried about being declined for a mortgage. A mortgage advisor can advise you on your options and help you find a solution that works for you.
Article author
Katy Davies
I am a keen reader and writer and have been helping to write and produce the legal content for the site since the launch. I studied for a law degree at Manchester University and I use that theoretical experience, as well as my practical experience as a solicitor, to help produce legal content which I hope you find helpful.
Outside of work, I love the snow and am a keen snowboarder. Most winters you will see me trying to get away for long weekends to the slopes in Switzerland or France.
Email – [email protected]
Frequently Asked Questions
What is an Agreement in Principle?
An AIP mortgage is not a guarantee that you’ll get the mortgage – it’s simply a statement from the mortgage lender saying that, in principle, they’re willing to lend you a certain amount of money.
How do I get a mortgage in principle?
Most mortgage lenders will have an online application form that you can fill in, or you can consult a mortgage advisor who will help you through the mortgage application process.
With an AIP, you’ll primarily be assessed by a lending multiplier that is applied to your income.
What are my rights if I’ve been refused a mortgage?
If you’re declined for a mortgage after an AIP, you should be given a reason why you haven’t met the lender’s criteria. If they don’t, you can ask them to explain their decision.
How do I make a complaint to the Financial Ombudsman Service?
You will need to complete a form on the Financial Ombudsman website to make a complaint. You can also call them on 0800 023 4567 or 0300 123 9123.
