St. Louis Fed research shows mortgage denial rates rise as borrowing costs squeeze U.S. homebuyers
Mortgage affordability pressures in the U.S. continue to weigh on homebuyers as elevated borrowing costs make it harder for applicants to qualify for loans. New research finds denial rates increased even as total mortgage applications declined, highlighting how higher rates are reshaping access to housing credit.
Highlights
- St. Louis Fed reports U.S. mortgage denial rates rise to 15.1% in 2024 from 12.2% in 2021 as rates surpass 6.5%.
- Total mortgage applications fall to 3.5 million in 2023 from more than 5.2 million in 2021, with denial rates peaking at 15.7% in 2023.
- Debt-to-income ratios drive 35% of mortgage denials in 2024, up from 29% in 2018, becoming the leading cause of rejections.
Fed research links rates to denial trends
As reported by the Federal Reserve Bank of St. Louis, the denial rate for mortgage applications reaches 15.1% in 2024, up from 12.2% in 2021, as mortgage rates climb from below 3.5% to more than 6.5%. The researchers analyze data covering more than 30 million home purchase applications and show that total applications fall to 3.5 million in 2023 from more than 5.2 million in 2021, while the denial rate peaks at 15.7% in 2023.The research says higher interest rates raise borrowers' debt-to-income ratios, a key measure lenders use to assess whether monthly debt obligations are manageable. In 2024, debt-to-income ratios account for 35% of mortgage denials, up from 29% in 2018, making it the main reason cited for rejection.
Lenders generally prefer a debt-to-income ratio of 36% or below, although some may accept higher levels depending on credit history, assets and income. For many conventional mortgages, however, a 50% ratio remains a hard cutoff, leaving more applicants outside qualifying standards as rates rise.
Our earlier article on the Polaris 2026-2 PLC mortgage securitisation explained how the deal bundles UK owner-occupied and buy-to-let loans originated in 2021 and 2026, reflecting Pepper Money’s focus on specialist lending. We noted that the pool includes a meaningful share of buy-to-let exposure and borrowers with county court judgments, and that stress scenarios involving higher foreclosures and lower recoveries could pressure certain note tranches.
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