Can a bank revoke a mortgage?

While it’s uncommon, it is possible for banks and mortgage lenders to revoke your home loan before you settle on a new property purchase.

Buying a home can be a stressful process at the best of times. The last thing you need is for something to get in the way of your mortgage after it’s been approved. 

There are a few factors that might affect the chances of your mortgage being revoked, including the stage you are up to in the home buying process and your loan application’s accuracy.

For example, if you have been granted conditional approval but your mortgage lender finds flaws in your application as part of your formal assessment, they may revoke the approval altogether before you get to the final stages.

What’s the difference between conditional and unconditional approval?

Home loan approval is generally granted in two stages – conditional approval, followed by unconditional approval.

Conditional approval

Also known as pre-approval, conditional approval is when the bank has assessed your application, plus any relevant documentation, and gives you the go-ahead to start looking for properties within a certain price range.

This approval stage is conditional in that it is subject to the suitability of the property you want to buy, as well as a formal assessment of your mortgage application.

However, it’s an important step because once you have conditional approval, you can start seriously looking for a property. If you find one that you want to buy, you can make an offer or bid at an auction with a predetermined borrowing limit in mind.

It is possible to make an offer on a property without conditional approval in place, though having pre-approval shows you're a serious buyer, and allows you to shop for properties confidently. 

Unconditional approval

Once you’ve found a property, the lender will appoint a valuer to carry out a valuation, and the lender will begin a final formal assessment of your mortgage application.

If successful, you will be granted unconditional (or formal) approval of your home loan, and the lender will begin the settlement process.

When might a bank revoke conditional approval?

Some of the cases where a lender could potentially decide to revoke your mortgage pre-approval include:

• You lose your job or main source of income
• The property you want to buy fails to meet the lender’s requirements
• You have been dishonest on your application
• Your spending or savings habits are inconsistent or reflect poorly on you
• You don’t find a property before the pre-approval expires (typically within three to six months)

A property may not satisfy a lender’s requirements if its valuation comes back significantly less than your offer. This would mean that your Loan to Value Ratio (LVR) is too high for a lender to approve without taking out a Lenders Mortgage Insurance (LMI) policy – this would protect the lender, not you, and you would likely need to pay for it. Alternatively, you could look for ways to increase your deposit, or consider seeking finance with a different lender.

Some lenders may not approve loans to buy certain property types. For example, some lenders prefer not to offer mortgages to buy small one-bedroom apartments or studios, as they may not be confident these properties will retain enough value to secure the loan if the bank had to repossess and sell the property.

Can a bank revoke unconditional approval? 

While unconditional approval is, by definition, approval that is not subject to any conditions, it doesn’t eliminate the possibility of something getting in the way.

It’s important to remember that mortgage lenders are obliged to comply with the responsible lending conduct obligations. If your circumstances change at any stage after your home loan has been unconditionally approved – but before settlement – your lender must reassess your suitability for the loan. If it believes you will no longer be able to service the loan because of your change in circumstances, it may consider revoking your unconditional approval.

It’s important to be completely transparent with your lender throughout the entire process as that will allow them to work with you to achieve the best possible outcome.

You might like to consider consulting a mortgage broker, as they can be a valuable resource at each stage of your home buying journey with their wealth of professional knowledge and experience. This experience could help you find ways to improve your home loan application’s chance of approval.

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