The mortgage industry is failing to keep up with modern borrowers, according to a new study conducted by Together.
It revealed that more than half of borrowers were rejected for lifestyle choices including being self-employed or buying a converted home. In fact, 54% of mortgage applications had been denied a home loan for reasons that could be considered ‘normal’ by most people.
These included factors that were once regarded as ‘non-standard’ such as their employment or the type of property they were looking to buy, including conversions or high-rise flats.
Pete Ball, personal finance chief executive officer at Together, said many mainstream lenders needed to keep pace with the demands of these types of borrowers. Some banks and building societies remained reliant on the computer-automated approach, and outdated and rigid criteria – when deciding mortgage applications, he said.
“The world has changed,” Ball continued. “People’s pay, working patterns and pensions have altered beyond all recognition from 30 or 40 years ago. Even where they live, who they chose to live with, or the type of property they want to buy is vastly different from a generation earlier.”
“What was previously thought to be ‘normal’ simply doesn’t exist anymore,” he added.
The study, which was conducted by YouGov, surveyed around 2,000 people about mortgage applications and the reasons why some of them had fallen out of the process.
It follows earlier research by the Intermediary Mortgage Lenders’ Association (IMLA), which reported that a significant proportion of the UK population failed to secure a home loan between an initial enquiry and the time they would receive a mortgage offer.
The latest survey revealed that 12% of those rejected were denied because of their employment type, while 3% had insufficient employment history. This is in spite of potential borrowers being in a good position to repay their mortgages.
One in ten (10%) borrowers were denied because the property they wanted to buy was considered ‘non-standard’, which could mean anything from a converted barn to a high-rise apartment.
Self-employed workers are also being pushed out of the mortgage market by some lenders, according to Together, with labour market data showing the population of self-employed people soaring by a quarter in the past decade to 4.8 million, making them a key part of the UK economy.
What’s more, millennials – those aged between 18 and 34 – were worst hit overall, with 66% failing to get on the housing ladder because of the way they live and work, which may mean they did not meet some mainstream lenders’ criteria.
The research also suggests that older people are missing out, with 46% of over 55s being denied home loans – some because they were too near retirement age. This could pose a problem in the future, says Ball, with the number of people aged 65-plus in England and Wales predicted to increase by 65% to more than 16.4 million in 2033.
Andrew Montlake of mortgage broker Coreco, commented: “Across the country, people are living and working longer and have varying ideas of what their perfect home will be at different stages throughout their lives.”
“Unfortunately, much of the mainstream mortgage market has been slow in catering for these potential borrowers, who make up a wide section of society. The market needs to continue to adapt to make sure it remains fit for purpose.”
Additionally, 18% people who took part in the survey were turned down because they had a low credit score or a lack of credit history. Some 9% said they’d been turned down because their deposit was too small and 16% said they were not earning enough to afford repayments on their home loan.
Of those who were unable to obtain a subsequent mortgage, 27% of applicants were put off ever going through the process again – rising to 32% for over-55s. Some 10% of those who withdrew a mortgage application/enquiry the last occasion they were unsuccessful found the process too complicated and pulled out before receiving an offer. A further 7% said there were too many stages.
Ball finalised: “As a lender, we’ve been providing flexible, common sense lending for over 44 years, so we recognise that was once considered unusual or specialist is now becoming more normal, and the mainstream needs to be able to adapt to the changing world.”