Why can the same mortgage be rejected by one bank and approved by another?

The same family can receive a "no" from one financial institution and, a few days later, obtain a mortgage approval from another bank. Far from being a contradiction, this situation is due to the fact that each bank has different criteria, objectives, and priority profiles.

“Many people believe that if a bank denies them a mortgage, the problem is necessarily with their profile. And that is not always the case. Sometimes they simply do not fit what that bank is looking for at that moment,” explains Ricard Garriga, CEO and co-founder of the digital mortgage search and hiring company Trioteca. “The same client can be uninteresting to one institution and very attractive to another,” he adds.

According to Trioteca, one of the keys to understanding the current mortgage market is that banks do not all compete for the same customer profile. “There are banks that love civil servants and, when a civil servant arrives, they can offer them a bargain price. Other banks better value certain self-employed individuals, profiles with recurring income, or families with the capacity for loyalty. That is why it is so important to know which bank fits each transaction,” Garriga points out.

This difference explains why two banks can respond in opposite ways to the same request. For one institution, a transaction may be too tight due to the level of debt, type of contract, amount requested, or location of the property. For another, however, it may be a viable transaction because it fits their acquisition strategy.

There are numerous factors that can cause a mortgage to be denied by one institution and approved by another. Among them are the financing percentage requested, job stability, income level, previous savings, type of property, location, applicants' age, accepted loyalty, and each bank's internal risk policy.

“Risk criteria are very strict, much more so than before the previous real estate crisis. But strict does not mean identical. Each bank interprets risk differently and has different commercial priorities,” states Garriga.

In practice, this means that an operation with 90% financing may be unfeasible for one entity and acceptable for another if the appraisal exceeds the purchase price, if the employment profile is solid, or if the bank is interested in attracting that type of client. “The buyer often interprets a denial as a definitive door closure. But in mortgages, a no doesn't always mean the operation isn't possible. It can mean that the wrong door has been knocked on,” summarizes Garriga.

The outstanding balance, key to understanding aggressive fixed-rate offers

Another factor that will shape the mortgage market in the coming months will be the ability of some banks to offer fixed-rate mortgages at particularly competitive prices. According to Trioteca, entities with a high volume of customer deposits, remunerated at very low or practically zero rates, have more room to launch attractive offers. 

This phenomenon helps explain why the best offers are not always permanently available or for all clients. “It takes a lot of coincidence for your bank's branch to be precisely the entity that best fits your profile at that moment. It can happen, but it doesn't always happen. That's why comparing is increasingly important,” states Garriga. 

At certain times, a bank may need to increase mortgage production and launch very aggressive conditions to attract specific operations. Once the objective is reached, these offers may disappear or become stricter.