One in three (32 per cent) UK borrowers have faced rejection by a lender on at least one mortgage application they’ve submitted in the past five years.
Some 44 per cent of those rejected said the reason came down to having irregular income, according to research by bridging finance lender KSEYE.
The findings, which also highlighted three in 10 (30 per cent) of those rejected were self-employed, have led to calls from borrowers for lenders to be “more flexible” in assessing applications.
KSEYE surveyed 2,000 UK adults, 752 of which had taken out a mortgage in the last five years. They ranged in age from 18-34 (358), 35-54 (325), and over 55 (69).
Of the 752 mortgage customers, the majority (59 per cent) said lenders needed to be better at taking into account an individual’s full financial circumstances.
“Given how busy and competitive the UK property market has been over the past 12 months, the mortgage industry has come under scrutiny,” said Kynan Benjamin, KSEYE’s underwriting head.
“And understandably so, with our research highlighting just how difficult it can be for individuals to jump through the necessary hoops to secure a mortgage.
“The self-employed, those working in the gig economy, and people with irregular sources of income are suffering the most.”
Earlier this year, a BBC report found two of the UK's largest lenders, NatWest and the Royal Bank of Scotland, were refusing mortgage applications from people who took the government's self-employment income support scheme grant.
Many self-employed workers have said they feel like second-class borrowers, particularly post-pandemic.
Specialist lender Aldermore published research in July, which showed two in three self-employed workers believed mortgage lenders treated them worse than those who are employed with a regular salary.
KSEYE’s research also showed how other paid - or paying - debts have not helped to prove their eligibility.
In a third of rejected cases, the lender found already owning another mortgaged property at the time did not help an application.
It also found more than a third (36 per cent) of those who were turned down by a lender said they were never told why their application had been unsuccessful.
Whilst almost half (46 per cent) had received an agreement in principle from a mortgage provider, only for the lender to later reverse its decision.
Half (50 per cent) of those surveyed used a broker, whilst the other half went direct to find a loan.
Benjamin said the specialist finance sector has seen an increase in mortgage applications across 2021, compared with previous years.
“Clearly, the inflexible application process that many lenders rely on is precluding some people from getting onto or moving up the property ladder,” he concluded.
He added smaller lenders such as KSEYE benefitted from high street lenders’ lost business, but they were not big enough to cope with the volumes of applicants in need of more accessible mortgage applications.
This is why smaller players welcomed the government’s 95 per cent loan-to-value scheme, which brought lenders back into the smaller deposit space following the pandemic.