Declined Agreement in Principle

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Declined Agreement in Principle

Declined Agreement in Principle

Rita joins us from The Mortgage Stop to explain what to do if your Agreement in Principle has been declined.

Can an Agreement in Principle or AIP be declined?

Absolutely, yes. Arranging an Agreement in Principle is an important part of the mortgage process. Whether you’re buying a property or whether you’re looking to remortgage, it gives you an indication whether the lender is likely to approve your mortgage.

What happens if my Agreement in Principle has been declined? What are the next steps?

Don’t worry, don’t panic. That’s what we’re here for. Even before we get to the stage of an Agreement in Principle, we would normally ask you to send in your documentation.

If you’re employed, we would ask for your pay slips for the last three months and bank statements. We look at the past three to four months to cross reference your pay dates and amounts of pay. If you’re self-employed, we’ll ask for your self-assessments.

Alongside that, we’ll also ask for your credit report. Your credit file should disclose all your debts – anything from store cards to credit cards to car finance. That gives us a good sense of your outgoings and your income. If there’s anything on your credit file that could potentially cause an issue with a certain lender, we can always clarify if that would cause any issues.

The lender might advise us to run an Agreement in Principle and do a background check on you. That is what an Agreement in Principle is. It runs a soft credit check. If it does decline, we liaise with the lender and ask why that happened.

They sometimes give you a rationale and suggest tweaking something, depending on the situation. If we know what the outcome is, we can go to another lender that will approve you.

Why has my AIP been declined? What are some of the reasons why this would happen?

If something has not been disclosed, nine times out of 10, it’ll be something to do with your credit history. Perhaps you haven’t been able to obtain your credit file, and you’ve had missed payments in the last six years, which is how long your credit history lasts.

It could be that you’ve moved addresses and didn’t update your address on your phone contract or the water company. As a result, there’s a late payment shown on your credit file.
Something as small as that can affect your Agreement in Principle and cause a decline – because the big banks, especially, prefer you to have a completely clean credit record.

That’s why we assess everything first. Another reason is credit scoring, which is different to credit history. The history is your own personal report around everything you’ve borrowed and paid back. Credit scoring, however, is individual to the banks.

They score you on how you run your bank account and any banking history with that lender. If you fail that scoring system, unfortunately, no matter what you do, it won’t pass.

We then have to look at the history of what’s happened historically. It could have been that on old bank accounts with that lender you weren’t very good with money initially. That could impact how the bank views you.

There are lots of technical reasons for a decline, but if we’ve done our due diligence it should pass. You could also decline if something doesn’t quite hit the bank’s criteria. For example, perhaps you’ve got a quirky, complex income and how we’ve keyed it in on their system means it’s not recognised. That’s something that can be easily overturned by calling them and asking how they want it keyed in. It would eventually pass.

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We’ll help you compare mortgage offers from different lenders and find the one that’s right for you. We can also answer any questions you have about the mortgage process and help you understand the paperwork.

Can a rejected Agreement in Principle affect your credit score?

If you’ve only done one or two applications, you’re okay. A third might also be fine, but if you do multiple ones successively, that will show on your credit file.

Let’s say you’ve done an Agreement with ourselves and then decide to go online and apply for other Agreements in Principle. Your file will show that you’ve been actively trying to source a mortgage.

What I would say is leave it with the experts. Let us handle it because we’ve got the relationships with the banks. We can decide who to put our next Agreement in Principle with if it’s overturned with the original lender.

Can an Agreement in Principle be changed?

Absolutely, yes. If you’re initially just understanding what you can borrow and if that’s realistic for the price range in a certain area, an Agreement in Principle can give you the confidence to go and look at property.

When you make an offer on a property, estate agents will request your Agreement in Principle because they need the reassurance that you can get the finance in place.

Maybe you’ve done an Agreement in Principle two months ago, you’ve now found a house and the numbers have changed. We can just change the Agreement and make sure all the numbers add up.

Can a mortgage be declined after an AIP?

Yes. Although an Agreement in Principle is 80% to 90% there and it can give you confidence, if any of your circumstances change between the original Agreement in Principle and when you’re applying for the mortgage, you could get a decline.

It could take you a few months before you find the right property within your price range. Perhaps you change your job or have a child within that time frame, which affects your income or outgoings.

We would check that with you, but if you submit it on the same basis as the Agreement in Principle from a few months ago, an underwriter will check all the information. They check what we’ve keyed in on your behalf but they also look at the documents you’ve provided. Does your pay match up? Do your bank statements match up to everything that we’ve declared?

There might be something they’re not happy with. For example, they may survey the property and it doesn’t quite fit the criteria for that lender. If the surveyor who has checked the property isn’t happy for any reason, it can decline on that basis.

It could be that there are undeclared loans that you may not have told us about. It might not necessarily show up on your original credit report, but if you subsequently buy a new car and didn’t declare that, the bank will see it on your latest credit report. That can affect affordability. So there’s lots of different reasons why it could decline.

How many times can you apply for an Agreement in Principle?

In theory, as many as you like, but going back to the earlier question it could affect your credit score. I would tread on cautiously and do one or two and over a period of six months to a year, that won’t then affect your credit rating much.

Certainly, if you’ve applied for an Agreement in Principle with an advisor and then gone to another advisor and they’ve done one, that’s fine. But it’s good to be upfront about why you did that.

Then, if it does show up on your credit file, we can answer any questions. The underwriter may ask why you tried multiple lenders – we just need to understand the rationale behind it.

How long does it take to get AIP approval?

Every mortgage advisor will have a different process. At The Mortgage Stop, we initially gather your information for a sense check. If there are any anomalies there or if we’re not quite sure, we can look into it.

Perhaps you get paid commission – how will a lender look at that? What else would they need to see? We can then collate all of that information ahead of any application for an Agreement in Principle.

Once we feel confident that the numbers stack up, we’ve run them through the calculators, the documents are there, we can then do the Agreement in Principle.

A lot depends on yourself, really. If I’ve asked you for information and you can get that to me within hours or days, we’ll have an Agreement in Principle ready for you.

How can I better my chances of getting my AIP approved?

Speak to the advisor about your circumstances. I had one yesterday who was a First Time Buyer and a trainee lawyer. When she’s fully qualified, her income will go up. So when is the right time for her to buy?

The same was true for her husband, he was a trainee engineer. We talked a lot about the next steps for them and their qualifications. When will they fully qualify and what will their income look like then? When would be the trigger?

We didn’t want to run multiple Agreements in Principle while their salaries are lower. They were looking to buy North London which is not cheap. So to maximise the borrowing potential we decided it’s best to wait until they have the qualifications and the uplift in salary and apply for an Agreement in Principle then.

If you’ve got issues with credit and you’ve had maybe a couple of missed payments, you might want to improve that before you get to the stage of doing an Agreement in Principle. We can put plans in place to help you get there. Again, that won’t cause any issues on your file and gives a more positive approval decision.

You’ve demonstrated how a mortgage advisor can help – have you got anything to add?

It will always help to speak to somebody that deals with this day in, day out. You might have a good income and not a lot of debts and think an Agreement in Principle should be no problem – but you just don’t know.

A mortgage advisor can cast their eyes over your documents and highlight anything that might be an issue with a particular lender, or where you need to provide extra evidence. You wouldn’t necessarily know that until you’ve gone through the process – and then it’s harder, because a bank won’t necessarily share that information with you.

We can usually get insight, and we also have business development managers that work specifically with mortgage advisors. We can talk to them about how their underwriters want us to present certain cases.

Independently, a bank wouldn’t advise you of any of that. It’s almost a ‘computer says no’ situation. But we can help guide you and spot differences you wouldn’t necessarily see unless you do this job.

Criteria changes all the time, and so do the mortgage industry, interest rates and government policies. All those things can impact decisions you make on buying a house.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.