Are you a mortgage misfit?
Mortgage rates have never been lower but too many people are unable to take advantage because they can't get a home loan at all.
Even borrowers with faultless credit histories are being rejected for new mortgages because lenders claim they are too risky.
Older borrowers are particularly vulnerable, with applicants in their 40s, 50s and 60s being turned down on grounds of age, even if they are financially solvent and can demonstrably afford their repayments.
They aren't the only ones to face a lock-out: contract workers, the self-employed and even expectant mothers are being told that the computer, or in some cases the underwriter, says no.
There is even a phrase for this new breed of prospective borrower: mortgage misfits. But don't despair if you fail to fit lenders' increasingly narrow criteria because, with a little shopping around and the help of a good broker, you may still be able to get that home loan. But why is it now so hard?
Banks and building societies blame their tougher approach on new mortgage regulations introduced by City regulator the Financial Conduct Authority (FCA) in April 2014, known as the Mortgage Market Review (MMR). MMR was designed to deter irresponsible lending and prevent another housing bubble by insisting lenders carry out extensive checks to make sure potential borrowers can afford their loan.
Applicants now have to submit to forensic questions on how much they spend each month on food, energy bills, credit cards, pension contributions, commuting costs, student loans, insurance, and even childcare and child maintenance.
Lenders also 'stress test' applicants, to ensure they can still afford their loan when mortgage rates rise in future.
That has made many lenders nervous about offering mortgage terms that run beyond the current state retirement age of 65, when they fear the borrowers' income will dip and make servicing the debt unaffordable.
Simon Tyler, founder of broker Tyler Mortgage Management, says the problem isn't so much with MMR but the way overzealous banks and building societies are interpreting the new rules. "Too many lenders are playing safe by taking a 'refuse first, ask questions later' attitude to applicants. Some are also using the guidelines to cherry-pick the least risky customers."
He says applicants aged 50 and over are being denied credit despite being excellent borrowers with impeccable credit records, simply because their loans stretch beyond their 65th birthday.
Some lenders are even refusing to take into account the fact that the state retirement age will rise to age 66 from 2020 and to 67 by April 2028.
Tyler says even people as young as 40 can struggle to get a 25-year mortgage to buy their dream property.
Worse, buyers are now taking the first step on to the property ladder at a much older age due to soaring house prices, Tyler says. "People who buy their first home in their 30s have only a few years to trade up to their family home before they are forbidden from taking another 25- year mortgage."
Lenders' play-safe attitude is the legacy of those costly mis-selling scandals, Tyler says. "Some lenders are worried about being investigated by the FCA years down the track."
Fortunately, others have adopted a more common- sense approach. "It is still possible to get a loan running into retirement, provided you can demonstrate that you have sufficient income from your pension, investments or buy-to-let property," he says.
Some mainstream lenders do offer mortgages that run beyond state retirement age. NatWest and Woolwich/Barclays apply a maximum age of 70, while Halifax, Nationwide, Santander and Virgin Money may stretch to 75 but only if you can show evidence of future income in retirement. Halifax has announced it will soon increase its maximum age to 80, and Nationwide will lend to people until they are 85 from July.
Simon Checkley, managing director of mortgage broker Private Finance, says a handful of lesser-known lenders, such as Harpenden Building Society, will lend beyond age 75, again, if you can produce evidence of future income from statutory retirement age. "Encouragingly, we were recently able to secure a mortgage for an 82-year-old client due to the size of his pension income."
But he admits it isn't easy for mortgage applicants to prove how much pension income they will get when they eventually retire.
It can be even harder if you have a physical job such as a builder or personal trainer, or in a profession with a mandatory retirement age, such as airline pilot, as you may struggle to convince the lender you can earn an income into retirement, Checkley says.
Consider smaller lenders
David Hollingworth, broker at London & Country Mortgages, agrees that smaller lenders tend to be more flexible. "Bath Building Society doesn't set a maximum age, as long as you can demonstrate that your mortgage is still affordable. National Counties and its subsidiary Family Building Society will consider applications on a case-by-case basis and lend up to age 89."
Ipswich Building Society has pledged to come to the rescue of older 'mortgage misfits'. It says that while it can't promise to lend to everybody, it will consider mortgages running up to age 85, provided it is "in the customer's best interests and meets our usual lending criteria".
Teachers Building Society has some deals running up to age 70 at application with a maximum age of 83 at the end of the term, Hollingworth says. "But as the society's name suggests, these are only open to the teaching profession."
Norwich & Peterborough Building Society will lend to a maximum age of 75, while Kent Reliance and Mansfield will lend to age 85.
The problem is that because you only have a choice on a smaller range of lenders, you may end up paying more for your mortgage. These days, the cheapest loans are reserved for the cleanest credit risks.
The elderly aren't the only ones classified as mortgage misfits. The self- employed and contract workers, or those paid in bonuses, can also struggle to fit in with new stringent lender criteria.
Existing borrowers who want a high-loan-to-value (LTV) mortgage, or who have seen their income fall, are also being turned away.
Even young women have been rejected after revealing their plans to start a family because the lender calculated that their income would drop after taking maternity leave.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says self-employed who have been working for at least three years with healthy bank accounts shouldn't find it too hard to get a mortgage.
"But if you have been trading for a shorter period, it gets harder. Similarly, if you are coming to the end of a contract and want to take out a higher LTV mortgage, you could run into trouble."
Again, some lesser-known lenders are more flexible, Harris says. "They don't always offer the cheapest rates but may be the keenest to lend."
He says flexible lenders include challenger banks Aldermore and Metro, as well as Clydesdale Bank, and building societies Cumberland, Kent Reliance, Mansfield and Saffron. Saffron for Intermediaries,
the broker channel of the Saffron Building Society, recently launched a new Transitional Mortgage aimed at borrowers with a good credit record who fail their lender's affordability requirements.
Brian Murphy, head of lending at Mortgage Advice Bureau, says specialist lenders Precise Mortgages and Kensington are geared up to help contract workers or the self-employed, he says. "They are more flexible and underwrite clients on an individual basis rather than using a computer-led, one-size-fits-all approach."
Like many specialist lenders, their deals are only available through mortgage advisers.
You don't have to accept your status as a mortgage misfit. It is still possible to win lender acceptance but you might need to take specialist advice to get it.
The practice of a dishonest salesperson misrepresenting or misleading an investor about the characteristics of a product or service. For example, selling a person with no dependants a whole-of-life policy. There have been notable mis-selling scandals in the past, including endowment policies tied to mortgages, employees persuaded to leave final salary pensions in favour of money purchase pensions (which paid large commissions to salespeople) and payment protection insurance. There is no legal definition of mis-selling; rather the Financial Services Authority (FSA) issues clarifying guidelines and hopes companies comply with them.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.