We hear the phrase “My mortgage application was declined” on almost a daily basis. With the current tight lending rules, having a mortgage application declined by the bank is a common occurrence. It can be very discouraging, but don’t lose hope. There are usually options available to overcome your home loan obstacles. Contact our team at Platinum Mortgages and see how they can help you get back on track.
It is not over if your mortgage application was declined
It’s usual for a bank to require a 3-6 month stand down after they decline an application, after which you can reapply. They’ll inform you of the actual period as part of the application process. But (more importantly) there is nothing to stop you applying straight away with another lender. The key thing is to understand why you were declined by your initial chosen lender. You can then take any action needed to rectify the issues.
The importance of using a mortgage broker
We know it might sound biased for a mortgage broking company to say you need a mortgage broker – but there’s a good reason why we say it, and our reasoning is compelling. Our mortgage broker will assess your situation and explain why your application was previously declined. They’ll then be able to advise you on what needs to be done to be successful in getting a home loan. They’ll look across all lenders, and thanks to their up-to-date industry knowledge, match you with the ones most likely to approve your loan. That’s a game-changer, as lending criteria is varied and individual to each lender and it changes all the time.
Understand why your mortgage application was declined
The majority of applications get declined due to one or more of the following reasons:
- Not enough deposit
- Not enough income
- A bad credit score
Once you understand why you were declined, you can discuss with your mortgage broker whether a different bank may accept your application. The banks each use different formulas when assessing whether a mortgage meets their “affordability” threshold. An application could be rejected for not enough income at one bank but accepted at another. Banks sometimes offer mortgages at under 20% deposit, your mortgage broker will know if this is an option currently available and whether you would meet the criteria.
If none are likely to, that leads us to…
Banks aren’t the only option when looking for a mortgage
The stringent lending rules among the banks can mean that an applicant who is perfectly capable of servicing a mortgage still gets declined by the banks. This is where a second tier lender can be a good option. They accept many applications that the banks decline. The flipside is they charge higher interest rates, but many people find it a worthwhile compromise to get on the property ladder.
If you do go with a second tier lender, make sure to make a financial plan to get yourself in a position to move to a bank within a couple of years to avoid paying higher interest long term.
Non bank lenders are often a good fit if:
- You’re newly self-employed. Usually the banks don’t approve lending to someone who has been self-employed for less than two years.
- Your income doesn’t meet the banks’ standards (but is still high enough to service a mortgage without hardship).
- You don’t quite have enough deposit for the banks.
- You’ve been recently discharged from bankruptcy.
- You have a low credit score.
What to do if you don’t currently meet the lending criteria or your home loan is declined
Next steps if you don’t have enough income
Reducing any debt is often the best place to start increasing your income. The banks minus any loan repayments when calculating your mortgage, and they assume the repayments will continue indefinitely. Therefore, if there are loans close to being paid off, it could be worth doing so sooner rather than later. Of course, this could eat into your deposit so it’s a balancing act.
The banks also assume any credit cards or overdrafts will be maxed out. As such, your income is calculated on the basis of making the maximum payments each month. Whether or not you pay your credit card off each month is not a consideration. Reduce credit limits where possible, or better yet, cancel credit cards and overdrafts.
Beyond reducing debt, increasing income can be tricky. Kiwi’s aren’t great at asking for a raise but it could be the difference between getting your own home or not. Look for opportunities for career progression, or even consider a job change. Of course, only if it will provide more opportunity and salary. We know these are not easy changes to make! If you do decide to go for it, make a plan and break it down into steps. Focusing on one step at a time will make the big moves feel much more manageable.
Next steps if you don’t have enough deposit
If you don’t have enough deposit, make sure you’ve looked into using your KiwiSaver and whether you qualify for the First Home Loan. If it’s a matter of saving more, then make a budget and put savings aside regularly. An automatic transfer of your budgeted savings to a separate account each pay day can really help you stay on track.
Next steps if you have a bad credit report
As advised previously, second tier lenders are often a viable option for those with bad credit scores. Don’t assume you don’t have borrowing options without first speaking to a broker.
If you have a bad credit score, make sure you check the details are correct. It can be a challenge to get them rectified. It is however worth pursuing it if it changes your score from bad to good.
If your report is correct then it becomes a matter of improving your credit score. This means reducing credit limits, paying bills on time and paying off hire purchases! Include considering consolidating your debt via a debt consolidation loan to reduce the overall interest you’re paying.
Ultimately, the steps you need to take – and the options available – depend on your personal situation. That’s why having a mortgage broker on your side helps. It’s especially important if you’ve been navigating the process without support, and your application is declined. We hope this shows why expert guidance can make all the difference.
Platinum Mortgages specialises in mortgage solutions for those who can’t get straight forward approval from a bank. Reach out for a no-obligation chat about your circumstances and whether we can help.
★ We Are Trusted
Angela is an accredited Financial Adviser, licensed under FSP742251 and has been in the Financial Industry since 2006. Our 5-star Google reviews reflect the excellent customer experience we promise — making your home loan journey positive, stress-free, and rewarding. At Platinum Mortgages, our clients are the reason we exist — so you can be confident every step is guided by genuine care and expertise.