10
June 2022
Third of Average Earners Refused Mortgage Amount Requested
Nearly a third (29%) of mortgage applications whose income was at or below the UK average were offered smaller loans than they requested, jeopardising their property purchase, according to the latest Affordability Index from Mortgage Broker Tools.
The analysis is based on the median annual pay of a full-time employee, which was £31,000 in 2021, according to ONS, and assumes two average earners applying for a joint mortgage with a household income of £62,000.
Tanya Toumadj, chief executive at Mortgage Broker Tools, said mortgage affordability checks are becoming more challenging across the board as house prices rise and the cost of living squeezes budgets.
Even around one in ten (12%) prospective borrowers earning between £62,000 and £100,000 and one-tenth of those earning more than £100,000 (11%) weren't offered the mortgage size they wanted.
However, those earning average wages or less are seeing a “more significant” impact on their ability to qualify for loans, Toumadj said.
“This is perfectly logical, of course, as the basic costs of living are the same for everyone, so those earning lower salaries have less disposable income each month once they have paid for essentials like food, power and fuel,” she said.
Lenders assess borrowers' income and outgoings when determining mortgage affordability, taking into account your regular costs like energy bills and fuel.
"It’s important that this sizable portion of the population are not disenfranchised from the ability to secure a mortgage to buy a home,” Toumadj said. Those lower-income borrowers shouldn’t feel discouraged, she suggested.
Among the cases Mortgage Broker Tools saw in April, 70% of borrowers with household incomes less than £62,000 were offered the loan size they wanted.
Lower-income borrowers have “sustainable and affordable” loans available to them. However there may be fewer lenders offering those deals in the current economic climate. And some borrowers and brokers might overlook those lenders that do cater to low-income borrowers, particularly if they’re off the high street.
As many as 42% of mortgage brokers don’t search outside of the top 10 lenders, Mortgage Broker Tools has found. That means that some lower-income borrowers might not find the lender willing to offer them the loan size they want and that many borrowers will pay too much. In 73% of cases, the most affordable mortgage deal is from a lender outside of the top 10.
