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"The Instagram Generation want to live a Champagne lifestyle on a lemonade budget"

ended 27. September 2024

Brokers have said a growing number of lenders appear to be retaining debts on affordability even when they are being cleared.

While lenders' focus on risk mitigation is understandable, the inclusion of existing debts in affordability calculations when they are being repaid, especially above 85% LTV, is proving a growing barrier for many borrowers. Newspage asked brokers for their thoughts, below.

One, Craig Fish, Director at Lodestone Mortgages & Protection, said: “Whilst this feels unfair, there is a valid reason behind it, and in my opinion a good one. Yes there are clients who genuinely intend to clear debt to improve their financial position, but sadly there are many that have become accustomed to lifetyle spending, beyond their means. There have been many occasions where borrowers haven't cleared the debts that they declared they would, making their financial position worse. These rules are there to protect the borrower as well as the lender and should be welcomed.”

Another, Dariusz Karpowicz, Director at Albion Financial Advice, took a different stance: “This approach really negates the whole point of debt consolidation and makes life a lot harder for borrowers trying to reduce their monthly commitments. It’s almost as if lenders are saying, “Once a spender, always a spender”, which isn't fair at all. Clearing debts should count for something, especially for those aiming to get back on track. Lenders, it’s time to rethink this policy and give borrowers a fair chance."

Meanwhile, Mike Staton, Director at Staton Mortgages commented: “Whilst this is an infuriating practice, you can't help but feel sorry for the lenders when discussing this. Unfortunately, we live in a time where the Instagram Generation want to live a Champagne lifestyle on a lemonade budget. You can forgive lenders for being cautious as, in many instances the lender is releasing thousands to a borrower before the debt is consolidated. Who is to say the applicant doesn't disappear with the money and spend it on a holiday, a new car or a new set of Turkey Teeth for that all important profile pic."
 

10 responses from the Newspage community

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Mike Staton
Director at Staton Mortgages
Whilst this is an infuriating practice, you can't help but feel sorry for the lenders when discussing this. Unfortunately, we live in a time where the Instagram Generation want to live a Champagne lifestyle on a lemonade budget. You can forgive lenders for being cautious as, in many instances the lender is releasing thousands to a borrower before the debt is consolidated. Who is to say the applicant doesn't disappear with the money and spend it on a holiday, a new car or a new set of Turkey Teeth for that all important profile pic. To the brokers that feel this is unfair, wipe your eyes and try and learn some criteria of other lenders aside from the regular 3 lenders you place cases with, there are plenty of lenders who do ignore debt being repaid so for me this is a non-issue. If lenders criteria was crystal clear and exactly the same, I'm afraid we would all probably be out of a job.
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Jack Tutton
Director at SJ Mortgages
Lenders retaining debts into mortgage affordability is something that we are seeing more often, especially with higher risk cases. This includes when the client is using the mortgage funds to repay the debts. The argument that lenders put forward for this is that people do not clear the debts when they say they would, and is based on the research they have carried out. In my opinion there is a simple answer to this, make it a condition of a mortgage offer that the solicitor repays the debt similar to how they have to redeem an existing mortgage. With increased rates still impacting affordability for many, this would be a much better solution to this problem instead of impacting what people can borrow by including the debts within affordability calculations.
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Craig Fish
Director at Lodestone Mortgages
Whilst this feels unfair, there is a valid reason behind it, and in my opinion a good one. Yes there are people who genuinely intend to clear debt to improve their financial position, but sadly there are many that have become accustomed to lifetyle spending beyond their means. There have been many occasions where borrowers haven't cleared the debts that they declared they would, making their financial position worse. These rules are there to protect the borrower as well as the lender and should be welcomed.
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Dariusz Karpowicz
Director at Albion Financial Advice
This approach really negates the whole point of debt consolidation and makes life a lot harder for borrowers trying to reduce their monthly commitments. It’s almost as if lenders are saying, “Once a spender, always a spender,” which isn't fair at all. Clearing debts should count for something, especially for those aiming to get back on track. Lenders, it’s time to rethink this policy and give borrowers a fair chance.
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Darryl Dhoffer
Founder at The Mortgage Geezer
Lenders' dark arts practice of heavily considering existing debt, especially when it's being repaid, can frustrate borrowers seeking high-LTV mortgages. The slow update of debt payments on credit files further exacerbates this issue. This can limit borrowing capacity, even for those with strong finances. Such a policy may discourage borrowers from paying off debt, as it seems counterproductive. While lenders focus on risk, a more nuanced approach that considers individual circumstances could be beneficial for both parties, and be more consumer-friendly.
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Michelle Lawson
Director at Lawson Financial
This is a great example of where common sense should be applied for underwriting and lending. Whilst some people will manipulate this situation to their advantage, hence this stance being taken, there are also genuine cases where people will be disadvantaged by such a policy. There is sufficient data now to demonstrate people's spending habits and this should be a human decision and not that of a computer.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
Some lenders do this across the board, others only at higher loan to values where risk is higher. One lender once advised that in an audit post-completion on cases where borrowers had advised debts were being paid off at completion, 3 months later 80% of the cases still had those debts outstanding. Therefore I can fully understand the lenders not taking clients at their word and ignoring those commitments from affordability, as the lender could be challenged if the debt ends up in court that this was likely unaffordable from outset. The only solution would be if clearing the debts was made a condition of the mortgage offer and the solicitor had the responsibility to clear them from the loan funds on completion.
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Simon Bridgland
Director at Charwin Private Clients
Whilst it’s frustrating as hell for a borrower who feels cheated out of their cheaper loan or potentially their new home, there is nothing normally forcing the borrower to actually repay the debts. Lenders are not daft and they know that on many occasions debts are not cleared, and if they are many consumers simply rack up debt again, living above their means. I feel that rather than simply taking them into account in affordability calculations if a borrower says they will clear them, then make it a condition of the loan that the solicitor clears them on completion.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
Whilst very frustrating for the honest borrowers, it has been shown in a number of research studies that a reasonable proportion of borrowers either don't repay the debts as promised, despite it being made a condition or undertaking within the mortgage offer, or they do but then rack it back up again once they move home. This isn't so much of an issue on a mortgage with a 40% deposit but is if there is only a 5% or 10% deposit. One method is for the lender or solicitor to pay the debts off as part of the completion process, ensuring the mortgage money is used to clear the promised debts and asking for the account to be closed, but this is very time consuming and increases costs, which will ultimately mean the lender can't be as competitive with their rates, or the borrower will have a higher legal cost than they originally accounted for.
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Iain Swatton
Director at Exemplar Financial Services
Having debts still factored in after they’ve been cleared feels like getting penalised for a problem you’ve already solved. But the reality is, for many clients, credit can be a bit like an addiction. Pay off one card, and boom, the spending cycle starts again. Think of it like trying to give up cigarettes—it sounds easy, but sticking to it is a whole different game.

Lenders are well aware of this, which is why they stay cautious, even when the debts have been paid off. Of course, this doesn’t apply to everyone, and it can feel harsh for those who’ve genuinely turned things around. That’s where the skill of a good broker comes in—their job is to find the right lender who sees the client for who they really are, and not just as a line on a credit report. Every client is different, and the skill lies in matching them with the lender who’s the best fit.