The mortgage industry is failing to keep up with modern borrowers’ needs, it has been claimed, after a new survey revealed that more than half were rejected for lifestyle choices including being self-employed or buying a converted home.
A study of the market commissioned by specialist lender Together found that a huge percentage of mortgage applicants – 54% who’d fallen out of the application process – had been denied a home loan for reasons that could be considered “normal” by most people.
These included factors once believed to be “non-standard”, such as their employment type – they could be self-employed, a contract worker or take a dividend – or the type of property they were looking to buy, including conversions or high-rise flats.
Pete Ball, personal finance CEO at Together (pictured), said many mainstream lenders needed to keep pace with the demands of these types of borrowers. Some banks and building societies remained reliant on a computer-automated approach, and outdated and rigid criteria when deciding mortgage applications, he said.
“The world has changed,” said Ball. “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.”
Together’s wide-ranging 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 mortgage application process.
It builds on earlier research by the Intermediary Mortgage Lenders Association, which revealed that a significant proportion of the UK population fail to secure a home loan between an initial enquiry and the time they would have received a mortgage offer.
The latest survey discovered that, of those rejected, 12% were denied because of their employment type, while 3% had insufficient employment history. This could be despite potential borrowers being in a good position to repay their mortgages.
One in ten 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 “locked out” of the mortgage market by some lenders, Ball said. Labour market data shows that the proportion of people who are working for themselves has soared by a quarter in the past decade to 4.8 million, making them a cornerstone of the UK economy.
Millennials – those aged between 18 and 34 – were worst hit overall, with two-thirds who took part in the survey failing to get on the housing ladder because of the way they live and work, which may mean they do not meet some mainstream lenders’ criteria.
Older people also seem to be missing out, the research suggests. A total of 46% of over 55s were denied home loans, some because they were too near to retirement age. This could pose a growing problem in the future, as the age of the UK population rises, said Ball, with the number of people aged 65 and over in England and Wales projected to increase by 65% to more than 16.4 million in 2033.
Download the full report here and or visit www.togethermoney.com
