Simplifying Mortgages for Complex Incomes

The rising cost of living, alongside the increasing Bank of England base rate in recent years, underscores the critical need for lenders to comprehensively assess all aspects of a borrower’s income when determining affordability, particularly for individuals with complex financial circumstances.

Mortgage Rate Increases

Recent data reveals a steep rise in mortgage rates. The average two-year fixed-rate mortgage, for example, has almost doubled, increasing from 3.03% in May 2022 to 5.91% by mid-May this year.

This substantial rise could make mortgage payments less affordable unless all income sources are factored into affordability assessments.

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Challenges for Borrowers with Complex Incomes

Borrowers with diverse income sources, such as contractors, self-employed individuals, and those on zero-hour contracts, often face difficulties in getting fair mortgage assessments. Automated systems typically fail to account for these variable incomes, treating such borrowers as second-class citizens.

Since the pandemic, work patterns have changed significantly, leading to more complex financial situations for many people.

To promote homeownership and reduce reliance on rentals, it’s crucial for lenders to recognise all income streams. Expats, for instance, might earn high incomes in foreign currencies through self-employment or contracts. Such incomes often don't fit into standard mortgage underwriting models, making it difficult for them to get fair mortgage assessments.

 

The Importance of Personal Underwriting and Why We Use It

This is where personal underwriting becomes vital. A human, personalised approach is essential for borrowers with complex incomes. Building societies like ours excel in this area by thoroughly assessing an individual’s financial position and history, rather than relying solely on automated systems.

By adopting a personalised approach, we ensure fairer access to mortgages by looking at borrowers holistically, helping us build stronger relationships with our broker partners and offer more tailored support to borrowers, whether they’re looking to remortgage or buy a new home.

 

Conclusion

Recognising all forms of income is essential for fair mortgage assessments. By adopting a more personalised approach, lenders can better serve a diverse range of borrowers, ultimately supporting the goal of increased homeownership.

 

Further reading

If you enjoyed this article, take a look at some more of our articles on our website:

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