Why banks refuse more mortgages today than they did a few years ago
Why banks refuse more mortgages today than they did a few years ago
Interest rates, income, property valuations and stricter criteria: what has really changed in access to mortgage credit
For many people who wish to buy a home today, there is a particularly delicate moment in the process: the point at which the possibility of purchasing a property meets the final decision of the bank.
In recent years this stage has become more complex.
Mortgage applications that in the past would likely have been considered sustainable are now sometimes rejected, reduced or approved under stricter conditions. For buyers, the perception is often that banks have simply become more rigid and cautious in granting loans.
To some extent this is true. But the reason goes beyond a simple increase in banking strictness.
Behind this change lies a combination of economic, financial and technical factors that have significantly transformed the way mortgage applications are evaluated.
Understanding these mechanisms is important not only for those who want to buy a home, but also for those who wish to sell one. Today, access to credit is often one of the most decisive factors in the success of a real estate transaction.
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Mortgage evaluation is no longer what it used to be
To understand why some mortgage requests are now more easily refused, we must start with a fundamental point: the credit market is no longer the same as it was a few years ago.
For a long time families could access mortgages with extremely low interest rates. This allowed many buyers to sustain relatively affordable monthly payments even when borrowing significant amounts.
With the rise of inflation and the subsequent increase in interest rates, the situation has changed considerably.
When the cost of borrowing increases, mortgages become more expensive. And when mortgages become more expensive, banks must assess more carefully whether applicants will realistically be able to sustain their payments over time.
In other words, it is not only the cost of borrowing that has increased — the margin of safety required by banks has also changed.
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The impact of interest rates
The most visible factor is, of course, interest rates.
An increase in rates directly affects the monthly mortgage payment. This means that, for the same amount borrowed, a mortgage today may require significantly higher monthly payments than it did a few years ago.
And this is where the first major banking filter appears.
Banks do not evaluate only the desire to purchase a property or the value of the house itself. What they primarily assess is the long-term sustainability of the monthly payment. If the payment is considered too high compared to the borrower’s income, the mortgage request may be rejected or the loan amount reduced.
For this reason many buyers discover only at an advanced stage of the negotiation that the mortgage they had initially imagined is no longer compatible with current banking criteria.
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The debt-to-income ratio
One of the most important parameters used by banks when evaluating a mortgage request is the relationship between household income and the monthly loan payment.
Generally speaking, banks prefer the mortgage payment not to exceed a certain percentage of the borrower’s net monthly income. Although the exact threshold may vary between institutions, the principle remains the same: families must retain sufficient financial margin even after paying the mortgage.
When interest rates rise, monthly payments increase. As a consequence, the debt-to-income ratio may become unbalanced.
This leads to a very concrete effect: people who would have qualified for a mortgage in the past may now fall outside the acceptable parameters, even if their financial situation has not changed significantly.
A mortgage application may therefore be rejected not because the applicant is unreliable, but because the loan amount requested is no longer considered economically sustainable.
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Job stability matters more than before
Another key element in the evaluation process is the professional profile of the borrower.
Banks pay close attention to the stability and continuity of income. Generally speaking, the most favourable profiles include:
• permanent employment contracts
• long and consistent work history
• stable and verifiable income
• professional continuity over time
More variable employment situations — such as recent contracts, irregular income streams or less stable work arrangements — may lead banks to adopt a more cautious approach.
This does not necessarily mean that obtaining a mortgage becomes impossible. However, it may require additional guarantees, a higher down payment or a lower loan amount.
In times when credit becomes tighter, employment stability becomes an even more decisive factor.
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The property itself also plays a role
Many people believe that the success of a mortgage application depends only on the financial situation of the borrower. In reality, the bank also evaluates the property that will serve as collateral.
For this reason a property valuation (bank appraisal) is always carried out by a qualified technician appointed by the bank.
This appraisal verifies several aspects, including:
• the real market value of the property
• the consistency between the price and the market
• the urban and cadastral compliance of the building
• the overall marketability of the property
• the level of guarantee the asset represents for the bank
If the appraised value is lower than the agreed purchase price, the bank may decide to finance a smaller amount than requested. In some cases this gap can jeopardize the entire transaction.
This highlights a principle that is often underestimated: a property may strongly appeal to a buyer, but if the bank does not consider its value coherent with the market, obtaining a mortgage can become much more difficult.
The importance of the initial down payment
In recent years the role of the down payment has also become more significant.
Banks rarely finance the entire cost of a property purchase. In addition to the purchase price, buyers must also consider:
• taxes
• notary fees
• possible agency commissions
• technical and administrative costs
• additional transaction expenses
This means that buying a home requires not only a suitable income but also a sufficient level of initial liquidity.
When this financial margin is missing, mortgage applications become weaker. The bank may perceive the transaction as too financially stretched and therefore more exposed to potential future difficulties.
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Banks are more cautious for systemic reasons
There is also a broader factor that is less visible to individual borrowers but highly relevant: banks operate within a system of increasingly strict prudential regulations.
Financial institutions are required to manage risk very carefully. As a result, they tend to finance the most solid operations with greater confidence, while applying stricter filters to transactions perceived as borderline.
In periods of economic uncertainty this prudence becomes even more pronounced.
The result is a more selective credit market in which it is not enough simply to desire a home or have a reasonable income. Applicants must present a profile that is coherent, stable and financially sustainable overall.
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Why this issue also concerns property sellers
A refused mortgage is not only a problem for the buyer. It also has direct consequences for the seller.
When a transaction depends on bank financing, the success of the deal does not depend solely on the willingness of the parties involved. It also depends on the buyer’s ability to meet all the requirements of the lending institution.
For this reason, today more than ever, sellers should understand that:
• an interested buyer is not automatically a financially ready buyer
• a purchase offer is strong only if supported by real financial capacity
• the asking price must also be compatible with the future bank appraisal
In other words, the mortgage market directly influences the dynamics of property sales.
https://www.ltimmobili.it/en/blog/when-does-a-purchase-offer-become-legally-binding/679/⸻
The perspective of LT Immobili & Design
In our daily work we often observe how central the financial phase has become in real estate transactions.
For this reason we always recommend that those who wish to purchase a property consult their bank or a credit advisor before signing a purchase proposal.
Knowing your real financing capacity in advance allows buyers to:
• focus on properties that truly match their budget
• avoid negotiations based on unrealistic assumptions
• approach the market with greater confidence
• reduce the risk of delays or unexpected obstacles later in the process
At the same time, sellers should understand that today the market does not only select properties — it also selects buyers.
A well-prepared real estate transaction does not begin on the day the purchase proposal is signed.
It begins much earlier, when all elements of the operation — the property, its documentation, the price and the buyer’s financial capacity — are coherent with each other.
In this context, it's essential to understand the tools that increase the security of the transaction. Among these, one of the most important is the deposit of the price with the notary, which protects both parties until the sale is completed.
