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Mortgage market fails to keep up with modern society: top tips for applicants

Written by: Paloma Kubiak
More than half of homebuyers have been rejected for a mortgage due to their ‘non-standard’ application indicating that lenders aren’t keeping up with changes in society.

Research revealed 54% of applicants have been turned down by a mortgage lender for reasons which should be considered the ‘new normal’.

The study by specialist lender Together and YouGov found applicants are being penalised due to their lifestyle choices such as self-employment, buying a converted property or one that’s in a high rise tower.

The survey of 2,000 revealed that 12% were turned down due to their self-employment status, which Together said would be a growing problem as this cohort of workers continue to rise. One in five (18%) were turned down due to having a low credit score or lack of credit history.

One in 10 failed to get a mortgage on a residential property which had been converted from a commercial property and because they wanted to buy a flat in a tower which had at least six storeys.

Together said the popularity of such properties is on the rise with a record of 97,000 high rise flats among the English housing stock today, while the number of converted properties has increased by 19% in just 12 months.

Only 9% of applicants were rejected due to not having a big enough deposit while 16% said it’s because they weren’t earning enough to make repayments on the loan.

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 is 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.”

Tips to enhance your mortgage application success

Nick Morrey, product technical manager at mortgage broker John Charcol, offers the following tips to help you sail through a mortgage application:

1) Credit/payment history is very important to lenders. Ahead of a purchase, make sure credit cards, mobile phone contracts, general insurance payments and utility bills are all on direct debit for at least the minimum payments. This shows you never miss a payment so a mortgage commitment is likely to be maintained.

2) If you don’t have at least three years of history on the electoral roll contact your local authority to get the register updated. It doesn’t matter if you actually vote but lenders search the electoral roll and not being visible is likely to count against you.

3) Keep payslips, P60s and bank statements. If you’re self-employed explain to your accountant that you’re going to be applying for a mortgage. You may want to stop claiming everything as an expense to boost your net profit as lenders look at this as your disposable income, though it may mean paying more tax. They’ll likely want to see up to three years’ of figures though some lenders only require one year.

4) Try not to be in an overdraft and definitely avoid going beyond it. Don’t have returned payments, don’t use payday loan companies and don’t have gambling website payments. Try to avoid payments to and from friends/family as it looks like you may have commitments elsewhere. If you do have such payments, make sure payment references are appropriate and not rude.

5) Property characteristics – lenders like simple, straightforward properties. Ex-council flats may require understanding of how much of the block is still in council ownership. ‘Deck access’ (open corridor to all front doors) is unacceptable to most lenders, as are flats over five storeys off the ground. Studio flats should be at least 30 square metres. New build houses with leases and ground rents are to be treated with caution. If the property falls into one of these categories, you should talk to your broker/proposed lender early in the transaction and ask them to approach the valuer for their initial thoughts as to the likelihood of acceptance. This could save you a valuation fee and possible trouble further in the process.

6) Zero hour contracts. Many lenders don’t like these but if you have a year or more track record then a few may be able to accept such income for affordability purposes.

7) Gifted deposits, Help To Buy, Shared Ownership and Shared Equity. For all these things it pays to do research early on so if there are any wrinkles or pre-applications (e.g. for HTB) then you can get them out the way ready for when you find the perfect home.

8) Talk to a whole of market mortgage broker as early as possible. A good adviser will discuss your options and steps involved in what you are doing and suggest how best to prepare for what is going to be the first really big purchase you will make. They may charge a fee but they work on your behalf. You can go direct to lenders but if they decline your application they can’t offer any advice as to where to try next. A good broker will recognise the problem aspects of an application upfront and avoid the lenders who would reject you automatically.

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