Most declines come down to five things: not enough assessed servicing capacity, something on the credit file, employment that does not fit the lender’s policy, a deposit problem, or the property itself. The worst response is to immediately apply somewhere else. Every application leaves a mark, and a run of them turns a fixable problem into a harder one.
Being declined feels like a judgement on your finances. Usually it is a judgement on the fit between your circumstances and one lender’s policy — and lenders differ enormously. What matters is finding out precisely why before doing anything else.
1. Servicing: the most common reason
The lender ran the numbers and concluded you could not comfortably afford the repayment at their stress-tested rate.
What usually causes it: credit card limits assessed at full value regardless of balance, a car or personal loan, HECS repayments, dependants, or declared living expenses below the lender’s benchmark so the benchmark applied instead.
What helps: reduce or close unused credit card limits, clear small consumer debts, or borrow less. A longer loan term also lifts assessed capacity, at the cost of more total interest. See how much can I borrow.
2. Something on your credit file
Defaults, missed payments, court judgements, or simply too many recent enquiries.
Two things surprise people here. Australian credit reporting includes repayment history for the past two years, so a payment more than 14 days late on a phone bill or a credit card is visible. And every credit application is recorded whether or not you proceeded, so a pattern of shopping around looks like financial stress to an assessor.
What helps: get your credit report — it is free from each of the reporting bodies — and read it before applying anywhere. Errors are more common than people expect and can be disputed. Genuine defaults can sometimes be dealt with, and specialist lenders consider files that mainstream lenders will not. See home loans with bad credit.
3. Employment that does not fit the policy
Very often the issue is not the income but its shape. Common triggers: still in a probation period, less than six or twelve months in a casual role, recently self-employed without two years of returns, contract work, or income that is mostly bonus, commission or overtime.
This is where lenders diverge most. One will decline a contractor outright; another lends to contractors routinely. One demands two years of self-employed financials; another accepts one year in defined circumstances.
What helps: matching your income structure to a lender whose policy actually accommodates it, rather than trying again at a similar institution. See self-employed, casual employment and contractor home loans.
4. A problem with the deposit
Two versions of this. Either the deposit is too small for the lender’s maximum LVR, or it is large enough but the lender will not accept where it came from.
Most lenders want genuine savings — money accumulated over at least three months. A gift from family, a sudden lump sum, or funds that appeared last week may not qualify, even though the money is real. Some lenders treat gifts more flexibly, and some accept a rental history in place of genuine savings.
What helps: letting savings season for three months, obtaining a properly worded gift letter, or using a guarantor.
5. The property itself
Sometimes you are approved and the property is not. Lenders maintain restrictions on: very small apartments below a minimum floor area, high-density buildings in postcodes they consider oversupplied, serviced apartments and student accommodation, rural properties above a certain land size, and anything with structural problems or unapproved works.
A valuation coming in below the purchase price has the same effect — the lender lends against their figure, leaving a shortfall you must cover in cash.
What helps: a different lender, because postcode and property restrictions vary considerably. If the valuation is the problem, a second opinion elsewhere sometimes produces a different number.
What to do immediately after a decline
Before anything else: the home loan readiness check takes about a minute, involves no credit enquiry, and will usually tell you which of the five reasons above applies to you.
- Ask for the specific reason, in writing. You are entitled to know. “Did not meet policy” is not an answer — press for which policy.
- Do not apply anywhere else yet. This is the single most damaging instinct. Each application adds an enquiry, and a cluster of them makes the next lender more cautious.
- Get your credit report and check it against what you were told.
- Fix what is fixable. Limits, small debts, seasoning the deposit, waiting out a probation period. Some of these take weeks rather than years.
- Then find the right lender rather than the next one. A decline for policy reasons is often solved by matching the application to an institution whose rules fit.
A decline is not on your credit file. The application is. The record shows that you applied, not the outcome. Which is exactly why the number of applications matters more than any individual result.
When the honest answer is to wait
Sometimes the right advice is not to reapply at all. If your deposit is genuinely too thin, if you are three months into a new job, or if a default will drop off your file next year, waiting is cheaper than forcing an approval.
Borrowing at the absolute limit of what someone will lend is its own risk. An approval is a statement about the lender’s appetite, not a verdict on whether the loan is good for you.
Common questions
The application appears; the outcome does not. Lenders see that you applied and when, which is why a series of applications in a short period is damaging regardless of whether any succeeded.
It depends on the reason. A credit limit reduction can be reflected within weeks. Seasoning a deposit takes about three months. A probation period or a default falling off takes as long as it takes. Fix the cause first rather than working to a fixed waiting time.
Often, yes, because the usual solution is a lender whose policy fits your circumstances rather than a better application to a similar one. The important part is understanding the precise reason before approaching anyone else.
Not necessarily. It depends on the size, the age, whether it has been paid, and the reason. Specialist lenders consider files that mainstream lenders decline, usually at a higher rate, and refinancing to a mainstream lender later is often possible.
Yes. Pre-approval is conditional. It can fall over if the valuation disappoints, your circumstances change, the property does not meet policy, or the full assessment surfaces something the preliminary one did not. This is why large purchases and job changes between pre-approval and settlement are a bad idea.