Mortgage brokers have warned that decisions in principle (DIPs) are giving some borrowers false confidence, with applications subsequently being declined when lenders carry out more detailed affordability and underwriting checks.

Brokers say they are encountering cases where borrowers receive an initial positive decision only to be rejected when lenders examine bank statements, credit commitments, income structures and property valuations.

Higher mortgage rates, unsecured borrowing and differences between lenders’ internal scoring systems are contributing to the problem, with some borrowers finding that an application rejected by one lender could be accepted by another.

The warnings follow reports from intermediaries that successful DIPs are not always translating into mortgage offers, raising questions about the reliability of initial lending decisions and the importance of preparing cases thoroughly before submission.

‘A DIP CAN LULL PEOPLE’

Matt Coulson, founder of Heron Financial, said: “A decision in principle lulls people too.

“It’s a soft check on headline numbers, so a yes there and a no later is common and rising, once the full application examines the bank statements, credit file and valuation.

“Plenty with good credit and a steady job still get declined, usually down to how they’re paid or the property, and a broker can often place that case elsewhere.”

Jamie Alexander, mortgage director at Alexander Southwell Mortgages, said he was also seeing more cases where an agreement in principle was followed by a decline.

He said: “Soft searches at AIP stage miss things a full application uncovers. Bank statements are where most cases unravel. Gambling transactions, buy now pay later, unexplained deposits.

“Underwriters are reading them closely. When someone is declined, the worst move is to immediately apply elsewhere.”

WRONG LENDER, WRONG DECISION

Ranald Mitchell, director at Charwin Mortgages, said lender selection was frequently as important as the borrower’s financial circumstances.

He said: “Mortgage declines are rarely about one big red flag, they are usually where several smaller risks stack up and the lender’s model says no.

“Declines are also frequent simply because the borrower has gone to the wrong lender. The same case can be declined by one bank and accepted by another because criteria and scorecards vary so much. A good credit score and decent salary are no guarantee.”

Babek Ismayil, founder and chief executive of OneDome, agreed that borrowers could be rejected despite having sufficient income to support a mortgage.

He said: “A mortgage rejection doesn’t always mean you can’t afford the property. It can mean you’ve approached a lender whose criteria don’t suit your circumstances.

“What many buyers don’t realise is that lenders can assess the exact same income, debts, and spending habits very differently.

“Even something as simple as how overtime, bonuses, or self employed income is assessed can change the outcome. The solution isn’t necessarily a bigger deposit or a higher salary. Sometimes it’s finding a lender that understands your finances differently.”

‘APPLICATIONS FAIL AT PREPARATION’

Craig Fish, director at Lodestone Mortgages, argued that more thorough checks before submission could prevent many applications being declined.

He said: “A mortgage decline is usually the end result of a process that went wrong right at the start, and most of them are avoidable.

“We do full due diligence on every case before a single application goes in: credit files pulled and read, bank statements reviewed line by line the way an underwriter will read them, and income tested against each lender’s actual criteria rather than its headline rules.

“Applications don’t fail at underwriting, they fail at preparation.”

Fish said the only declines his firm typically encountered were property-related, where valuations or surveys revealed previously unknown problems.

REPEATED APPLICATIONS

Stephen Perkins, managing director at Yellow Brick Mortgages, warned that a rejected application should not automatically lead to another submission.

He said: “A mortgage decline is often a lender saying ‘this case doesn’t fit us’, not the market saying ‘you cannot get a mortgage’.

“We have seen from our own affordability research just how differently mainstream lenders can assess identical borrowers, so choosing the wrong lender at the outset can turn a perfectly viable case into a decline.”

Perkins also cautioned against making repeated applications without identifying the original problem.

He added: “A decline itself is not recorded on a credit file, but the searches associated with repeated applications can be, so blindly trying lender after lender can make matters worse rather than better.”

Mitchell said brokers needed to establish whether the problem was affordability, credit history, income, property type or lender-specific criteria before recommending another application.

He added: “The biggest mistake after a decline is firing off another application blindly. Find out why it failed, fix the weak point and choose the next lender properly.

“Very often, a decline is a lender-selection problem as much as a borrower problem.”

This Newspage research was sponsored by Charwin Mortgages.