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Brokers warn borrowers: be careful who you fall in love with

Journalist:

ended 12. September 2023

Borrowers should be careful who they fall in love with, brokers have warned. They revealed their frustration following a young couple in their early twenties, clients of Graham Taylor of Hudson Rose, being refused a mortgage last week due to ‘financial association’ rules.

The couple in question are not married, no deposit is being provided from the individual with poor credit and the individual with poor credit is not named on the mortgage or deeds. They were simply going to be living in the property together.

However, they did have a joint rental agreement and do share a joint account, although the party with the clean credit score applied for the mortgage using their own personal bank account.

Reflecting on the decision, Graham Taylor, managing director of Nailsworth-based independent mortgage broker, Hudson Rose, said: “These are clients of ours, and whilst I understand the rationale of why lenders have such a policy, in this instance, it feels as though it is not being applied correctly. There is a major difference between a married couple gifting a deposit between the parties and trying to circumvent adverse lending policy and a young, unmarried couple who happen to live together. If the risk is based on someone's ability to repay the mortgage and the loan is based on a sole income, a third party's historic credit file should not come into play. Surely, we live in an age now where credit scoring is advanced enough to make a decision, which perhaps was not the case a decade ago? All in all, this feels like a very outdated policy and is adding extra hurdles in an already difficult market.”

Meanwhile, Lewis Shaw, founder of Mansfield-based independent mortgage broker, Shaw Financial Services, was far from impressed: “It's ludicrous that in this day and age, archaic financial association rules are still in place. It smacks of discrimination and shows that some lenders have a long way to go. How can a lender decline an application for someone just because they're in a relationship with someone without perfect credit? Should Tinder profiles now stipulate you can only swipe right if your credit score is above 900? Should people be asked on a first date to provide a copy of their credit report just in case the relationship goes somewhere and you want to buy a property at some point? It's scandalous. How does lending policy such as this fit with Consumer Duty because it doesn't seem fair to me. Bad credit isn't like Covid: you can't catch it from someone else. You don't choose who you fall in love with, so for a young first-time buyer to be barred from getting on with their life is disgusting. The regulator needs to shine a light on these types of practices and stop them from happening.”

Rhys Schofield, brand director of Belper-based Peak Mortgages and Protection, also questioned the decision: "An inflexible approach like this reeks of discrimination. If this party is in no way associated with the mortgage then on what grounds is it fair to decline the mortgage? As well as that, how the hell is it GDPR compliant for the lender to process this data and make a decision that they've decided to involve him in with no consent on file either?"

Much the same conclusion was reached by Emma Jones, managing director of Frodsham-based independent mortgage broker, When The Bank Says No: “I think declining by association is wrong, especially when people are not tied by marriage. If someone is prepared to take on the risk and fits the affordability and credit score set by the lender then this shouldn't impact their decision to lend. This is costly for clients as declines can sometimes occur weeks into the application process once the application hits underwriting final assessment.”

But other brokers came out in defence of this policy by lenders. Gary Bush, financial adviser at the Potters Bar-based MortgageShop.com, said: “Lenders basically have the right to refuse to fund a property purchase if it is evidenced that a financial association exists that could potentially be to the detriment of the lender. As the lender is taking on the risk and lending the money it is a device that they can fall back on if they see that this could cause them troubles with satisfactory repayment arrangements. Credit checks and scoring are based on the applicant's individual circumstances but if an association is confirmed to a lender they have the right to take the other potential occupiers' data into account.”

Scott Taylor-Barr, director of Leicester-based broker Barnsdale Financial Management, also understood the decision of the lender: “The issue that a lender can find themselves in is that they are being asked to lend a lot of money to someone they are comfortable with, but that person lives with someone they are not comfortable with and wouldn't lend to. Lenders will no doubt have many examples of previous instances where they have lost money in this sort of situation and, ultimately, that is what is the main driver to most lender behaviour: is this a situation where we have made or lost money in the past?”

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10 responses from the Newspage community

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Graham Taylor
Managing Director at Hudson Rose
These are clients of ours, and whilst I understand the rationale of why lenders have such a policy, in this instance, it feels as though it is not being applied correctly. There is a major difference between a married couple gifting a deposit between the parties and trying to circumvent adverse lending policy and a young, unmarried couple who happen to live together. If the risk is based on someone's ability to repay the mortgage and the loan is based on a sole income, a third party's historic credit file should not come into play. Surely, we live in an age now where credit scoring is advanced enough to make a decision, which perhaps was not the case a decade ago? All in all, this feels like a very outdated policy and is adding extra hurdles in an already difficult market.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
Financial associations can sometimes be created if they share a current account, or maybe are jointly on a utility bill account when living together in rented accommodation, for example, if they put the gas bill in joint names. Whilst most lenders should not be declining them on this basis, they do have the option to remove the financial association through the credit reference agencies.
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Darryl Dhoffer
Founder at The Mortgage Geezer
Sadly credit scoring systems with high LTV product requirements will most likely fail every time, based on financial association. If one applicant shares common bills with a non-applicant who will.be living in property who has adverse, then a high LTV product will fail. In this instance, I look at lenders who will credit check and not credit score, or put in a bigger deposit.
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Katy Eatenton
Mortgage & Protection Specialist at Eatenton Finance
It's funny that this is a story. While I agree women should know a future partner's credit history/conduct and also a DBS check before getting involved with them, we ask this of future employees in financial services, so why wouldn't you in life? I do think that is a bit harsh from a lender's perspective, though. I don't understand why the usual consent to mortgage requirements wouldn't be enough to satisfy their concerns, especially if the couple doesn't share a bank account or any other credit commitments. Also, the fact that one party is buying without the financial associate should give the lender confidence that they are capable of budgeting and covering their outgoings with or without the other party. It may also mean that they do not see the relationship as serious enough to buy a property together so may fizzle out anyway.
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Emma Jones
Managing Director at Whenthebanksaysno.co.uk
I think declining by association is wrong, especially when people are not tied by marriage. If someone is prepared to take on the risk and fits the affordability and credit score set by the lender then this shouldn't impact their decision to lend. This is costly for clients as declines can sometimes occur weeks into the application process once the application hits underwriting final assessment.
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Kundan Bhaduri
Property Developer and Portfolio Landlord at The Kushman Group
Banks and financial services firms have a duty to check the security on which they are lending. If the lender doesn't agree with the previous conduct of a potential occupant who has previously not paid rent, or their mortgage payments have not been timely, they should be able to deny the mortgage, as the lender must protect their shareholder interest. Not paying your rent, mortgage or bills must have consequences. Financial delinquency should not be normalised in society otherwise we end up becoming a banana republic.
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Gary Bush
Financial Adviser at MortgageShop.com
This is an old problem that still exists in some cases. Lenders basically have the right to refuse to fund a property purchase if it is evidenced that a financial association exists that could potentially be to the detriment of the lender. It's a bit fussy but as the lender is taking on the risk and lending the money it is a device that they can fall back on if they see that this could cause them troubles with satisfactory repayment arrangements. Credit checks and scoring are based on the applicant's individual circumstances but if an association is confirmed to a lender they have the right to take the other potential occupiers' data into account. An example is if you were a landlord and you were taking on a new tenant but knew that the tenant's partner, who was to reside in the property, had just been released from prison for a serious offence and knew that the partner's credit history was appalling, would you not reject the new tenancy? This lender principal is a backstop.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
What would you do if your best friend asked to borrow £100? Would your answer change if you knew their partner had a gambling addiction? Would it change if their partner already owed you £100 and hadn't paid it back to you? Now imagine if it wasn't your best friend, but someone you vaguely knew and it wasn't £100, they wanted to borrow £10,000. I'm sure your reaction changed to every single scenario. The issue that a lender can find themselves in is that they are being asked to lend a lot of money to someone they are comfortable with, but that person lives with someone they are not comfortable with and wouldn't lend to. Lenders will no doubt have many examples of previous instances where they have lost money in this sort of situation and, ultimately, that is what is the main driver to most lender behaviour: is this a situation where we have made or lost money in the past?
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
An inflexible approach like this reeks of discrimination. If this party is in no way associated with the mortgage then on what grounds is it fair to decline the mortgage? As well as that, how the hell is it GDPR compliant for the lender to process this data and make a decision that they've decided to involve him in with no consent on file either?
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Austyn Johnson
Founder at Mortgages For Actors
If they are not on the deeds/mortgage, part of the affordability or gifting any deposit, why were they even credit-checked? There must be more to this than is being let on. I expect they are sharing something and therefore are financially connected. I wouldn't lend my money to a friend if their partner was a crackhead.