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Declined for a Mortgage NZ — What to Do Next

Updated

Having a mortgage application declined is disappointing — but it’s not the end of the road. Most declines are for addressable reasons, and understanding exactly why you were declined is the first step to getting approved in the future.

Ask for the Reason

Banks in New Zealand are not legally required to give detailed reasons for a mortgage decline, but most will provide a general explanation if you ask. Common responses include:

  • Credit history issues
  • Insufficient income or deposit
  • Too much existing debt
  • Property-specific issues (valuation, title, construction type)
  • Employment instability

If you applied through a mortgage broker, they should be able to give you a more detailed read on why the application failed and which lender might be better suited.

Most Common Reasons for Decline

1. Credit history issues

Unpaid defaults, missed payments, or a pattern of overdrawn accounts are red flags for lenders.

Fix:

  • Get a free credit report from Centrix, Equifax, or illion
  • Dispute any inaccuracies (incorrect information must be corrected by the bureau)
  • Pay any outstanding defaults — note that paid defaults still show on your file for up to 5 years from the date of the original issue, but many banks view paid defaults more favourably
  • Maintain 3–6 months of clean financial behaviour before reapplying

2. Insufficient deposit

You don’t meet the LVR requirements for the lender — typically 20%, or 5% under the First Home Loan.

Fix:

  • Continue saving and build your deposit to the required level
  • Investigate the Kāinga Ora First Home Loan if you qualify (5% deposit route)
  • Consider whether a family guarantor can bridge the gap
  • Check if a new build property (LVR-exempt) changes your options

3. Income too low / DTI exceeded

Your debt-to-income ratio is above the lender’s limit (typically 6× for owner-occupiers), or your income relative to the loan amount doesn’t pass the serviceability stress test.

Fix:

  • Reduce the loan amount you’re applying for (consider a cheaper property or a larger deposit)
  • Increase income — second job, salary negotiation, additional income sources
  • Reduce existing debt (pay off car loans, credit cards, student loan if applicable)
  • Close unused credit cards (even zero-balance cards reduce your borrowing capacity)
  • Wait and allow income to grow

4. Employment concerns

Banks want to see stable, ongoing employment. Applications are often declined or complicated when:

  • You’re still in a probationary period (first 3 months)
  • You’ve recently changed industries or employment type
  • You’re casual or seasonal with irregular income
  • You’ve been self-employed for less than 2 years

Fix:

  • Complete your probationary period before applying
  • Build up 2 years of self-employment records if you’ve recently gone self-employed
  • A specialist non-bank lender may assess contractor or variable income more favourably

5. High living expenses vs income

Banks compare your declared living expenses against your bank statements. If the statements show higher spending than declared, or if your total lifestyle costs are high, the bank may determine you can’t comfortably service the loan.

Fix:

  • Reduce discretionary spending genuinely — 3–6 months before reapplying
  • Close Buy Now Pay Later accounts (these count as liabilities regardless of balance)
  • Review your bank statements as the bank would — identify expenses that look concerning and be prepared to explain them

6. Property-specific issues

Sometimes the borrower is creditworthy but the property itself causes the decline:

  • Valuation below the purchase price
  • Property type not acceptable to the lender (certain construction types, leasehold, apartments below minimum size)
  • Significant unconsented work

Fix:

  • Renegotiate the purchase price with the vendor to align with the valuation
  • Find a different property
  • Try a different lender — banks have different appetite for property types (non-bank lenders are sometimes more flexible on unusual properties)

Your Options After Decline

Option 1: Reapply with the same bank after addressing the issue

If the decline is for a fixable reason (e.g., you’re 2 months into probation, credit file has one old issue), address it and reapply in 3–6 months.

Important: Every mortgage application creates a credit enquiry on your file. Multiple enquiries in a short period can lower your credit score and raise red flags with future lenders. Don’t shotgun applications to multiple banks simultaneously.

Option 2: Apply to a different bank

Banks have different policies and risk appetites. A situation that causes a decline at ANZ might be approved at Kiwibank, or vice versa. A mortgage broker can tell you which lender is most likely to approve your specific situation.

Option 3: Use a non-bank lender

Non-bank lenders (Avanti Finance, Resimac, Liberty Financial, Pepper Money) are not constrained by the same RBNZ LVR rules as registered banks and often have more flexible credit policies. The trade-off: rates are typically higher (0.5%–2.0% above bank rates) and fees may be larger.

Non-bank lending can be a bridging option — borrow now at a higher rate, build equity and clean credit history, then refinance to a mainstream bank after 1–2 years.

Option 4: Address the issue and wait

Sometimes the best option is to take 6–12 months to fix the underlying problem:

  • Build your deposit further
  • Pay off debt
  • Complete probation
  • Clean up credit history
  • Build 2 years of self-employment records

This isn’t failure — it’s building a stronger application. The next attempt is more likely to succeed and may secure a better rate.

What NOT to Do

  • Don’t apply to multiple lenders simultaneously without speaking to a broker first — this creates multiple credit enquiries and may worsen your position
  • Don’t despair about one lender’s refusal — it doesn’t mean you can’t buy
  • Don’t take out additional debt to try to “bridge” to a deposit — this typically makes things worse
  • Don’t use a high-interest personal loan or payday lender as a deposit supplement — banks will see it in statements and decline again

Further Reading