Brokers have issued a warning to borrowers and revealed their frustration following a young couple in their early twenties 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 independent mortgage broker, Hudson Rose, told Newspage: “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 All in all, this feels like a very outdated policy and is adding extra hurdles in an already difficult market.”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 Shaw Financial Services, was far from impressed.
He said: “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 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 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 broker Barnsdale Financial Management, also understood the decision of the lender.
He added: “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?”
