Higher earners and professionals refused mortgages

One of the changes that lenders have made post-pandemic and as a result of the cost of living crisis, which has almost gone unnoticed, is to their risk modelling and internal credit scorecards. It is not common knowledge outside the industry that in order to successfully apply for a mortgage at any loan to value you have to hit a required score for that particular lender. It is a tightening of these scorecards and an inability to manually underwrite that has seen more and more quality applicants being unable to secure a mortgage. Specifically for newly qualified professionals, this issue has been rife. One of the drawbacks of being in a profession that requires a degree and/or professional qualifications is an unstable address history and/or a lack of credit history. In such situations, historically, you could look to lenders who manually underwrote these cases such as Clydesdale, but with the merger with Virgin Money, this avenue is closing. As lenders look to automate their processes more, then this is a client type that will be disadvantaged unless lenders introduce specific policies around them. And whilst manual underwriting does exist with some specialist lenders, it is less prevalent on the high street.

I have noticed that people on lower incomes are being offered less by lenders due to the affordability calculations. However, the high net worth clients we look after are still being offered the amounts they require. We just have to do a little bit more work before application, to make sure the lenders' calculations are up to date.

As a high net worth mortgage broker, we have noticed that some lenders have tightened their affordability calculations in recent months. We recently had a client that had a mortgage offer at £1m before the rate changes. When there was a chance that there would be a material change we had to check the new affordability calculation. Based on exactly the same figures, the max loan dropped by 25%.

Any credit issues, no matter how minor, are always going to be an issue with most mainstream lenders. This is regardless of someone being on £100,000 a year or £25,000 a year. Even a disputed parking ticket can mean a decline with some major lenders. Added to this is the fact that lenders have made their affordability calculations stricter. It is best practice for a prospective borrower to get their credit report before seeing a broker. A good broker will then consider the credit report and the client's circumstances, enabling them to pinpoint the correct lender for them. This could mean a specialist lender, who is usually broker-exclusive, with a higher rate, but it will mean that they can obtain a mortgage in most cases.

Mortgage lenders assess mortgage applications on two key factors, affordability and credit worthiness. Each has its own internal scorecard that an applicant must achieve for them to be accepted. Due to the economic predicament we're now in and the challenging market conditions of the past few months, some lenders have tweaked their scorecards and affordability rules, which now means an applicant that would have been eligible for a mortgage back in July, say, would now be rejected. High street lenders only want the best of the best and specialist lenders are more lenient towards clients with an impaired credit history. People don't realise that having missed payments on credit cards, store cards, loan repayments and utility bills can have a detrimental impact on their ability to borrow in the future. I expect the number of people having issues with their credit files to continue into 2023 and beyond.

I'm happy to report that, currently, I've not had any more issues with high earning and professional clients than any other applications I have on my desk - in fact most lenders have better lending rules and show more flexibility around high earners and professionals. In terms of credit history, it is quite difficult nowadays to have a light credit file, as so much is reported to the credit bureau; utility bills, your phone bill, monthly car insurance payments, your bank account use all get reported, not just your loans and credit cards. Of course, it is possible to have a light credit file, but you almost have to work at it; have a pay-as-you go phone, pay for car insurance in one go, live at home so you have no utility bills, have a basic bank account and no other forms of credit. Sadly, I have seen a few with impaired credit history and often due to silly things; an unpaid parking fine, a credit card payment that's was made late as it wasn't on a direct debit, or a default from a mobile phone company because they didn't settle the final bill when they switched providers; all seemingly small issues, but all capable of derailing a mortgage application, or impacting on the choice of lenders available. The cost-f-living crisis is impacting the affordability of all borrowers, self-employed or employed. Lenders calcualtors have all now been amended to reflect the increased cost of energy, fuel and food, meaning the mortgage your income will generate now is less than it woudlhave secured you 12 months ago.

All honesty, I haven't come across this issue. Yes, affordability has tightened as interest rates have increase, but as a broker with access to the whole of the market it is rare that we struggle to place an application, if you have poor credit, it is harder and more expensive but not often is it impossible.

At John Charcol we are seeing more middle class and higher earners turning looking at 2nd charges as a way of reducing their outgoings. Following the pandemic, low borrowing rates, increase in savings following months of lockdown and build-up of accidental savings, and pent-up demand to go out and live life to the full, has seen many households especially those with higher disposable income living beyond their means. Historically homeowners may have look to refinance their mortgage to debt consolidate but has rates have increased and lenders affordability calculations tighten, many for the first time have had to face rejection at applications. The 2nd charge market as a result has seen a huge increase in the last few years. 2nd charge lenders have a more relaxed approach to assessing income and what the client is looking to raise funds for, for example paying a tax bill. The British attitude when it comes to debt and a sense of shame and embarrassment also doesn’t help those that choose not to seek help and advice early on as a result full back on payments and the consequence this has on credit scores. Income for higher earners is typically assessed in the same way as middle and lower income earners, with certain lenders offering higher multiples, but some lenders have exercised their right to be cautious but taking a ONS average household inflation into account and higher rates meaning when it comes to remortgage certain lenders wouldn’t offer the same amount as previous years.