I’m intrigued by what is perceived as ‘normal’ in the mortgage market, and how (what is often described as) the ‘new normal’ is said to be constantly shifting with lenders often deemed to be chameleons, or shape shifters, changing their criteria and underwriting and approach in order to tap into these new ‘normal’ borrowers and ensure they have the mortgage finance they need.
And then I read research on this subject which seems to show that, while ‘normal’ is changing – certainly in terms of what is normal for mortgage borrowers – that is not necessarily being mirrored by the mortgage market. If anything, in many cases, there appear to be few sops to the shifting working environment, or the fluctuating needs of borrowers, and some lenders appear to be operating as if the last 10 years never happened.
Take, for instance, the recent research from Together on this very subject, which concluded that:
- 54% of mortgage applications were turned down for reasons which could be considered ‘normal’ by most borrowers, or would-be borrowers.
- 12% were denied because of their employment; 3% had an ‘insufficient employment history’; 10% were denied because the property was considered to be ‘non-standard’.
- 66% of those aged between 18 and 34 were denied a mortgage because of the way they live and work, which apparently did not fit with a mainstream lender’s criteria.
- 46% of over 55s were denied because they were too near a retirement age, even though the nature of a ‘standard’ retirement age no longer applies.
Now, I’d like to point out that I’m not of the belief that somehow everyone has a God-given right to get a mortgage or purchase a house. I’m also of the belief that lenders should operate as they see fit – they are the ones taking the lending risk and it should be up to them who they deem worthy of that risk. If that borrower does not have the necessary deposit/equity and/or can’t meet the affordability criteria then clearly lenders have every right to deny them the loan.
My view however is that, at the very least, lenders active in what we might call the ‘vanilla’ market, must be aware that not every individual in the UK has a 9-5 job with a company which provides them with the same amount of money every single month, and is therefore the only borrower that should somehow be able to pass all their tests and secure the loan.
Again, let’s be fair here, a number of lenders have long since moved away from such an approach however when you are operating on strict criteria which goes through an automated process, then the likelihood is that you are going to end up blocking a large number of borrowers who may be a perfect risk but do not comply with the lender’s idea of what is ‘normal’.
We all know the UK working environment has undergone a huge change in the last decade, precipitated by the Credit Crunch which chewed up so many people and spat them back out into a job market which (quite frankly) had few jobs to offer them. Since then, we’ve seen a massive growth in people setting up their own businesses, going self-employed, opting to be freelance, taking multiple jobs, working in non-traditional areas, working far later into life, taking on different contracts in different sectors, the list goes on.
There are a huge number of existing (and potential) mortgage borrowers who no longer work in what would be described as ‘traditional’ roles in traditional companies in traditional sectors. And, just because that’s the case, it does not automatically mean they are not able to afford mortgage payments, or that they are a bigger credit risk, or that they should be somehow ostracised from the ‘mainstream’ market where they might be able to get better-priced products.
While the specialist market – and the challenger banks – are operating far more in this space (which is great news) I still can’t help feeling that those mainstream lenders turning down these types of borrowers are somehow missing a trick. If you stick to closely to an old vision of ‘mainstream’ or ‘normal’ then (at some point) the world moves on and you may find that barely anyone is able to get a mortgage with you because your criteria and underwriting is predicated on a borrower type that no longer exists.
There is a need here for lenders to be constantly updating their approach based on a changing ‘normality’, or we risk pushing certain borrowers to the margins. Turning down a borrower because they might have two or more sources of income, or they earn different amounts each month, or they get a significant bonus once a year, seems incredibly self-defeating, and does not reflect today’s working environment. It’s time to ensure that lending policies reflect the new ‘normal’ otherwise they will only continue to ‘work’ for a lending environment that has long since ceased to be. And what’s the point of that?
Richard Adams is Managing Director of Stonebridge Group