Mortgage lenders have been accused of ‘living in the past’ after new research revealed half of people rejected for a mortgage were turned down because of modern lifestyle choices.
A study by mortgage provider Together and YouGov uncovered evidence 66% of potential young buyers had been refused a mortgage because of life choices such as being self-employed or buying a converted property.
Yet, more traditional reasons for denying applicants a mortgage were less common. Only 9% had been turned down because their deposit was too small and 16% were rejected because the lender deemed their earnings were not enough to make repayments.
It suggests, said Together, that lenders were failing to adapt to the changing trends of society, with 54% of applicants being turned down for reasons it considered ‘the new normal’.
Its survey of 2,000 people who had fallen out of the mortgage application process between making an initial enquiry and receiving an offer, set out to investigate why such a large proportion of the population were eliminated from the process.
One of its main findings was that half of those rejected had been put off ever applying again.
And it also focused in on millennials, and discovered those aged between 18 and 34 were more likely to be turned down for factors linked to their life choices than those in the over-55 age group.
Reasons for rejections
But, overall, 12% of rejected applicants were turned down because of their employment type – something, Together said, would become more common as the UK’s self-employed grew.
Meanwhile one in five were turned down because they had a low credit score or had a lack of credit history. Together said this highlighted the need for more education about the importance of having a strong credit score and how to build this up.
A tenth of applicants were rejected because their chosen property was considered non-standard. This included converted properties – such as homes converted from a non-residential building such as a pub turned into a house or high rise properties of six storeys or more.
Stuck in the past
Pete Ball, CEO of personal finance at Together, said: “There has been a paradigm shift in the UK mortgage market as people’s ways of living are constantly evolving, however the UK mortgage market are stuck in the past in adapting to these changing needs of customers.
“This is largely due to the increasingly computerised process of lenders which automatically declines customers whose day-to-day circumstances do not fit their tick-box model.
“As a result more than half of mortgage applicants are rejected for reasons that are essentially becoming the norm, pushing more customers further away from achieving their property dreams.”
Ball said it was ‘staggering’ that factors such as being a contract worker or self-employed could exclude someone from the mortgage application process rather than not having a big enough deposit.
“This is a strong indication,” he said, “that factors for measuring your fitness for a mortgage are not adapted to modern customers’ needs.”
