Whether you’re a first-time buyer or looking to get a mortgage to move to your next home, it’s helpful to understand how a lender’s assessment works, from working out how much they’re willing to lend to you, to knowing the reasons why a lender may decline to lend on a specific property.
Understanding mortgage lender assessments
Lenders use the mortgage application process to assess your credit history and affordability. They will also carry out a Mortgage Valuation to check details about the property you’re buying, which can be either a physical valuation of the home by a qualified surveyor, or an automated assessment using property market data.
While most lenders are open to a wide range of properties, a small percentage may be declined based on a lender’s individual risk appetite. In such cases, they might request further checks, or provide a valuation that differs from the one agreed with the seller. However, these steps don’t always lead to approval. That’s why it’s important to understand the lender’s reasoning and explore what options are available to you
Different lenders also have different criteria when they’re carrying out their assessments. So, if one lender declines to offer a mortgage on a property, it doesn’t mean you won’t be able to secure a mortgage with a different lender.
How does a Mortgage Valuation work?
Lenders decide whether to offer a mortgage on a property by looking at things like public records, their own internal checks, and a professional valuation of the property.
During the valuation, the property’s condition, market value, and location are assessed. The conveyancing process checks for any legal issues related to the property, such as planning permission or access rights, that might impact its value in the future.
Typically, larger lenders begin with an automated valuation, using a wide range of data – including recent sales and valuation records for the property itself and comparable properties in the area.
This method is quick and efficient, but its accuracy depends on the availability and quality of data, and policy rules may determine this method cannot be used for specific properties across lenders.
If an automated valuation cannot be run due to policy rules, or the data is insufficient, a Mortgage Valuation will be required.
These involve a more detailed review, either remotely by a surveyor or through a physical inspection of the property, and allows lenders to make informed decisions about the risks of extending a mortgage offer.
When it comes to assessing a property, the condition of the property, location, and environmental risks will be considered as they can directly affect a property’s value and resale potential.
Three reasons why a property might be declined by a mortgage lender
- Environmental risks
Lenders will consider environmental risks to a property, such as flooding or subsidence, and other potential hazards that can increase the risk associated with the property and the impact on its value.
Flooding is a significant concern, especially in areas prone to heavy rainfall, or if a home is close to a large body of water, like a lake, river or the sea. If a property is in a designated flood zone, the risk of it incurring significant damage can deter lenders.
Subsidence is another risk factor. This refers to the gradual caving in or sinking of an area of land, which can impact the structural integrity of a property.
It’s important to check if a property can obtain building insurance to mitigate these risks and assure lenders that potential issues are covered.
- The condition of a property
The condition of a property can influence a lender’s decision to approve or decline a mortgage. Properties made from non-standard construction types, such as steel or timber-framed houses, may be viewed as higher-risk by lenders.
If a property is in a significant state of disrepair, it suggests that extensive and costly renovations could be required. For instance, properties with old electrical systems or poor plumbing are less likely to secure a mortgage as these issues could lead to expensive repairs that might impact the buyer’s financial stability.
Access to essential utilities like water, electricity, and sewage services is also considered. For example, homes in remote areas may raise concerns from a lender about long-term inhabitability or a decline in the property’s value.
If a home you’re looking to buy has any of these condition issues, it’s a good idea to conduct thorough assessments and address these risks proactively to increase the chances of mortgage approval.
- The location of a property
The location of a property will also influence a lender’s decision to approve or decline a mortgage application.
For instance, if a home is above a commercial property, such as a shop, lenders may be concerned about the potential noise and disturbance affecting future resale value.
Some lenders may avoid offering more mortgages in areas where they already have a lot of properties. This is called ‘concentration risk’ – it means the lender doesn’t want to take on too much financial risk in one location.
It’s important to remember that the above issues may not lead to a lender rejecting a property or that other lenders will also decline a mortgage. There are often clearly stated next steps you can take which can lead to a property being accepted.
These are likely to form ‘conditions in the offer’ and can be rectified during the conveyancing process. These can range from specialist investigations to confirm if a potential risk is a problem or not (e.g. damp reports) or to get works booked in to fix the roof – even if those works start and conclude after completion.
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Next steps: what to do if a mortgage lender has declined a property
Getting a mortgage decline can be frustrating, but there are things you can do to help you to proceed with a successful mortgage application.
Contact a mortgage broker
Get in touch with a mortgage broker or adviser. An expert broker will offer insights tailored to your specific situation and could suggest options which may allow you to purchase the property with a mortgage.
Some brokers specialise in declined applications. Properties made from non-standard materials can be challenging to mortgage. Specialist lenders are often more flexible with these properties, so consider working with a mortgage broker with access to whole-of-market options.
Check your options with other lenders
Not all lenders have the same criteria. You can contact a mortgage broker, who can use their expertise to help match you with specialist lenders who may be more flexible. You can also apply for a mortgage with a different lender – some may be more willing to lend on non-standard properties.
Consider ways to reduce the size of your mortgage application
The Mortgage Valuation is mainly for the lender’s benefit, and the full details are not usually shared with you. So, if the lender values the property lower than expected (known as a ‘down valuation’), you might not be told exactly why.
If you do find out that the valuation is lower than the agreed purchase price, you may need to either renegotiate the price with the seller or increase your deposit to cover the difference. You could also consider appealing the valuation or providing evidence of similar properties in the area that support your original price.
Address structural issues
If the property you want to buy has structural problems, seek a structural survey from a qualified surveyor (see more details below). This will give you a clearer picture and can help negotiate repairs or adjustments with the current owner.
Three types of home-buyers’ surveys
There are three types of surveys available when you’re buying a property. Each type of survey varies in cost and depth, so choosing the right one depends on the buyer’s needs, the property’s type, and the level of detail required to make a confident purchase decision.
- Level 1 Survey – Condition Report
Previously called a Condition Report, a Level 1 survey is a report you can use to get a broad assessment of a property’s condition. It’s suitable for newly built or well-maintained homes but doesn’t cover specific repairs needed. A Condition Report flags major issues like structural defects that can affect safety and the resale of the home. It offers buyers an initial understanding and serves as a basis for further detailed inspections if necessary.
- Level 2 Survey – Home-buyer Report
A Level 2 Survey, previously called a Homebuyer Report, offers a detailed analysis of a property’s condition, identifying structural problems, subsidence risks, or dampness not visible in simple checks. It assesses roofing, walls, and woodwork to highlight necessary maintenance and potential costs. This survey is ideal for newer properties or those in reasonable condition, helping buyers negotiate repairs or price adjustments effectively.
- Level 3 Survey – Building Survey
A Level 3 Survey, which was previously called a Building Survey, previously a Full Structural Survey, is ideal for older or uniquely-built properties. It offers a detailed look at a property’s construction and condition, important for buyers planning renovations. The survey checks visible areas for structural integrity, defects, and maintenance needs, revealing hidden issues like dampness or subsidence. This information helps buyers estimate repair costs and negotiate purchase prices. Overall, a Building Survey provides a thorough understanding of a property’s state and protects long-term investment.
What’s the difference between a survey and a mortgage valuation?
The terms valuation and survey are often confused, but they serve different purposes in the home-buying process.
A Mortgage Valuation is for the lender to check if the property is worth the amount you’re borrowing. It includes an in-person inspection or an automated check to assess market value. Because it’s for the lender, you might not see the full report, as unlike a survey, it’s not designed to protect you as the buyer.
The Mortgage Valuation won’t highlight structural issues or repairs. There may not be a cost to you, but it’s a good idea to check as it could be included in your mortgage fees.
Getting a Mortgage in Principle
A Mortgage in Principle, sometimes called an Agreement in Principle, gives you a personalised result showing how much you can borrow. You’re not committing to anything, and your credit rating won’t be affected. And you’ll be one step closer to a full mortgage offer.
If you’re applying for a Mortgage in Principle with Nationwide, on Rightmove, you can add the details of the property listing you’re interested in to the application to check if Nationwide would lend on it.
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Reapplying for a mortgage after a property decline
After addressing the issues that led to your mortgage’s decline, consider reapplying. Reflecting on previous feedback and improving specific areas can enhance the likelihood of approval.
Can a mortgage be declined after a valuation?
Yes, post-valuation issues such as the lender disagreeing with the property’s assessed value can lead to a decline. Structural problems, or legal restrictions like rights of way, may also cause a refusal.
Can a mortgage be declined after a Mortgage Offer has been issued?
Even if the offer was made, new information can cause the lender to reconsider. Lenders may re-check your financial situation before completion, especially if there’s a delay. They will check things like:
Any changes in your financial circumstances: such as job loss or a reduction in your income; if you have any new credit commitments or issues; and if there has been any significant changes in your spending.
Issues with the property: for example, if there were any legal problems found during conveyancing, such as title defects or access issues; if a survey has uncovered any serious structural issues; valuation concerns (e.g. ‘down valuation’ or non-standard construction)
Expired mortgage offer: most offers are valid for 3 to 6 months, so if your purchase is delayed, the offer may expire and will need to be reassessed.
Fraud or misrepresentation: if any part of the application is found to be inaccurate or misleading, the lender can withdraw the offer.
Lender policy changes: these are rare, but possible, especially if market conditions shift or the lender tightens its criteria.
FAQs
What if my mortgage application falls through?
If your mortgage application falls through, it’s a good idea to review the reason why and amend your application before trying again. You can also consider applying with another lender, or contacting a mortgage broker who will give you individual advice on your options and next steps.
How does a lender use my credit score for a mortgage application?
Your credit score is used to give mortgage lenders an idea of how you’ve managed credit in the past. The higher your credit score is, the more options you’ll have when it comes to getting approved for a mortgage. But it’s just one of the things mortgage lenders consider when you apply.
Lenders will also carry out an affordability assessment. The amount that you earn forms the basis for lenders to determine how much you’ll have left each month to pay towards your mortgage, as well as things like existing credit payments.
What is a mortgage broker or adviser?
Mortgage brokers – also known as a mortgage advisers – are qualified experts who help you find the best mortgage deal based on your financial situation. Instead of going directly to one bank or lender, a broker compares a wide range of mortgage products from across the market.
To summarise
- Lenders may decline a mortgage if the property has environmental risks such as flooding or subsidence.
- The condition of the property matters – major disrepair or non-standard construction can be seen as higher risk.
- Location issues (e.g. being above a shop or in an area with concentration risk) can affect a lender’s decision.
- A mortgage decline doesn’t mean the end – other lenders or specialist brokers may still approve.
- You can improve your chances by addressing issues, renegotiating the price, or increasing your deposit.
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