Refusal of a mortgage: what are the reasons, how to avoid it and what solutions for borrowers?

When the file does not tick all the boxes and represents a risk of non-repayment, the banks refuse to grant the mortgage. Here's everything you need to know to avoid a mortgage loan rejection.

"Your home loan is refused". This sentence is the obsession of many buyers. While the banks are more and more selective and forced by the authorities to respect new rules, they scrutinize all the elements of the file even more closely...

But comparing it to 2019, it was 2.8%, a sign that the share of refusals is increasing... "These refusals penalize first-time buyers in the first place (40% in 2021 versus 44% in 2020) and rental investors, directly impacted by the HCSF standards" (High Council for Financial Stability), he continues. Applicants for loans must therefore pay attention to certain points which are considered risks for bankers.

We explain the main reasons for refusing a loan and the solutions to avoid it.

What are the main reasons for refusing credit?

Each bank conducts its own commercial policy, so not all have the same selection criteria. On the other hand, the financial authorities have listed general rules that everyone must follow to the letter.

The High Council for Financial Stability has indeed forced banks, under penalty of sanctions since January 1, 2022, not to exceed a maximum effort rate and duration of the loan. For the effort rate, this must not exceed 35% insurance included and the duration of the credit must not exceed 25 years in the old one, 27 years in the event of deferred amortization for a new or old purchase with major renovations.

Debt ratio too high

These rules make it possible to avoid situations of over-indebtedness. On the other hand, the banks benefit from a derogatory margin of 20% of their production. 80% of this is reserved for financing main residences, 30% of which is dedicated to first real estate purchases. "All banks take advantage of the derogatory envelope, but not always for the same profiles. Brokers can also direct customers to specialized establishments, but the criteria for living is generally stricter", adds Cécile Roquelaure.

With this margin of flexibility granted by the HCSF, banks can therefore agree to finance certain profiles that are not in the nails.

What counts to put the odds on your side: having a concrete file at the time of the request for financing. And this goes through several elements, including account management, the professional situation and the effort that the mortgage represents in relation to the borrower's charges.

Thus, a file that exceeds 35% debt could be accepted, but nothing is less certain. It is therefore better to opt for security and rely on a debt ratio of 33 to 35% insurance included. This debt ratio will be lower if the borrower is already in debt, this is the case for rental investors or for those who have consumer loans in progress (student loan, car loan, etc.).

"If the repayment period of your car or consumer loan is relatively short (less than a year), most banks will not take it into account when calculating your debt ratio", specifies Vousfinancer. However, if it is longer, it is better to repay it to have maximum borrowing capacity.

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Excessive load jump

One of the elements that can be a reason for refusing a loan is what bankers or brokers call the jump in charges, that is to say the upward trend in the charge represented by the mortgage in relation to the rent or the borrower's current monthly payment.

Unstable work situation or income

It is often said that the CDI is a sine qua non condition for obtaining credit. Seniority in employment and stability of income are also criteria for accepting a file. Thus, CDD profiles or self-employed people who do not have two to three years of balance sheets will have more difficulty obtaining an agreement from the bank.

Bad account management

Another warning signal for the bank, the management of the bank account. Files with repeated overdrafts, excessive spending, end of month limits will have more difficulty in reassuring the solidity of the file.

Real estate contribution too low

The down payment level is usually 7/8% of the purchase price, in some cases it can be reduced. Buyers who have a significant real estate contribution most often benefit from better loan conditions. On the other hand, in the opposite case, some banks will consider the file too risky. Financing without contribution is possible, but mainly concerns young buyers (who can justify a low level of savings) and who still have a few cents aside.

“It is still possible to borrow without contribution in certain banks, in particular for borrowers under 31 whose income will be scalable or for the highest income brackets who have savings but do not necessarily wish to inject it. in the project", observes Sandrine Allonier for Vousfinancer who specifies that most banks no longer wish to finance more than 100% of the value of the property, therefore the ancillary costs, in order to reduce the risk of non-repayment of the loan in the event of resale. precipitation or decline in the value of the property.

Thus, if you have these rules in mind, you already have a good chance of having an accepted file. Conversely, it should be understood that the files which do not respect them risk receiving a refusal of loan... Here are some advices to react in the event of refusal of credit.

What to do in case of refusal of a mortgage?

If the file is refused, several options are possible to react. “If it is still far from the date of the condition precedent for obtaining credit, the borrower can ask a new bank to hope to obtain his credit, advises Ludovic Huzieux.

If it is too close to the deadline, it is better to notify the notary immediately and produce the letter or letters of refusal of credit to avoid losing its sequestration and the application of the penalty clause included in the sales agreement. .

Finally, do not panic, since in some cases a loan refusal does not mean that the operation falls through. By persevering some borrowers have obtained the precious sesame. In addition, it is possible to obtain additional time with the seller to submit a loan offer by signing an addendum. Finally, going through a real estate broker can help certain profiles to contact the right establishment. Better targeting your research for banks and preparing your file well according to these different criteria will keep the painful letter of loan refusal away...