Brokers have noted a worrying trend where more and more borrowers are approaching them with multiple loans and credit facilities from the same lender — and have urged the FCA to look more closely at the practice.
One said: “This double standard in underwriting creates a debt paradox. Households can be awash with high-interest credit card debts and loans but unable to secure a mortgage. This highlights a deeply flawed financial system in serious need of reform to promote responsible lending practices. The FCA should take note.”
A second added: “This raises questions about risk and responsibility, as lenders may prioritise higher margins from unsecured loans over consumer welfare.” A third agreed: “It seems it’s more favourable and profitable for lenders to have unsecured debt as opposed to much safer secured debt. If left unchecked by the FCA, this is a worrying trend that could result in the next banking crisis.”
A fourth concluded: “More people than ever are living life on the never-never. It’s arguably at its most dangerous point ever.”
Harps Garcha, Director at Brooklyns Financial, says: “The discrepancy in how lenders assess affordability for mortgages versus personal loans and credit cards is one of the biggest mysteries in financial services. Mortgage lenders require extensive financial details, whereas affordability checks for personal debt seem minimal. I recently encountered a client with over £100,000 in consumer debt on a £50,000 annual salary, who is about to retire within the next five years. How does this make sense? As for car finance, ‘affordability check’ is not even in the vocabulary.”
Ranald Mitchell, Director at Charwin Private Clients, says: “The rampant availability of unsecured credit to UK households without proper affordability checks is a scandalous practice that preys on the most vulnerable. Credit card companies and lenders extend exorbitant credit limits to lower-income households with little regard for their financial stability or repayment capacity.
“This reckless lending traps households in a vicious cycle of debt, and financial institutions’ blatant disregard for long-term consequences reveals a systemic failure to protect consumers. Mortgage lenders enforce stringent checks, meticulously assessing borrowers’ financial health, yet the same scrutiny is glaringly absent in the issuance of unsecured credit.
“This double standard in underwriting creates a debt paradox. Households can be awash with high-interest credit card debts and loans but unable to secure a mortgage. This highlights a deeply flawed financial system in serious need of reform to promote responsible lending practices. The FCA should take note.”
Ben Perks, Managing Director at Orchard Financial Advisers, adds: “There is definitely a paradox here. When you want a mortgage, the lender will often make you jump through multiple hoops to get approval. But the same institutions are throwing out unsecured loans and credit cards willy nilly. There needs to be more consistency. Getting a mortgage can almost be too hard while getting a chunky unsecured loan too easy.”
Justin Moy, Managing Director at EHF Mortgages, says: “We have definitely seen an uptick in consumer finance from a much smaller pool of lenders, with borrowers typically indebted to a couple of credit cards and a personal loan from their bank or even supermarket.
“The ease of obtaining unsecured credit has always been a problem, even pre-approved credit limits without too many checks. Whereas in the past a lot of that debt was moved from one 0% deal to another, that opportunity has rapidly diminished, and rates of up to 30% on mainstream cards are not uncommon.
“Lenders need to put in a similar process to mortgage lending, ensuring borrowing is affordable, without putting undue pressure on household finances. More people than ever are living life on the never-never. It’s arguably at its most dangerous point ever.”
Dariusz Karpowicz, Director at Albion Financial Advice, says: “This is the case a lot of the time. I see it frequently in my clients’ personal circumstances. People often approach a broker with multiple unsecured loans and other products such as credit cards and car loans, with minimal affordability checks.
“This lack of stringent checks allows even those with poor credit histories to get accepted. Unlike the rigorous process of applying for a mortgage, obtaining unsecured loans is relatively easy, which can lead clients to overstretch their budgets. This raises questions about risk and responsibility, as lenders may prioritise higher margins from unsecured loans over consumer welfare.”
Michelle Lawson, Director at Lawson Financialm, says: “People having multiple loans with the same lender is a worrying trend we’re seeing more and more of. The debt some people have been allowed to accrue, often via a few clicks on a banking app, is frightening.
“Given the rigorous affordability checks for mortgages, it’s ironic that the very same providers allow multiple credit facilities for the same person with little or no affordability checks. Given the high level of interest rates at present, this is putting pressure on already fragile household budgets and really does need looking into by the regulator.”
Samuel Mather-Holgate, Independent Financial Advisor at Mather and Murray Financial, says: “Defaulting on mortgage finance can have a catastrophic effect on your living arrangements and your family. Home loans are taken out over very long periods and circumstances can change over this time, and with the value of these loans higher than unsecured debt it’s only reasonable lenders are prudent.
“Most banks act responsibly when lending on credit card and personal loans. They will set a maximum borrowing amount and if customers don’t utilise this all at once, it’s still there to be taken advantage of in the future. Banks will look carefully if customers are coming back time and time again though, as this shows a lack of financial discipline. Lenders have improved over recent years, but there is more to be done to ensure customers aren’t getting into difficultly with debt, but it’s a tightrope to walk.”
Stephen Perkins, Managing Director at Yellow Brick Mortgages, says: “Banks will struggle to justify how much of the unsecured lending they offer, often with little to no affordability checks or underwriting, is genuinely affordable. This can only be due to the much better margins available compared to mortgages, on which many borrowers have to walk across tightropes whilst blindfolded to be approved, having provided everything bar a blood sample to validate their eligibility and affordability. Sadly all too often, for many the personal loans, car finance and credit cards they have in place end up seriously restricting their ability to buy a home.”
Simon Bridgland, Broker/ Director at Release Freedom, says: “It does seem like a double standard from some quarters. On the one hand, lenders are very happy to throw unsecured money at people for cars or holidays and general lifestyle spending at higher rates of interest, but when it comes to people wanting funding for secured borrowing, the dive into their finances changes from shallow to deep.
“I feel people should be made more aware of the impact that personal unsecured borrowing has on the ability to borrow on their mortgage, even if not raising further funds. Surely if a mortgage borrower can afford a personal loan and credit card, then a borrower with the same circumstances who holds a loan and card can similarly afford the mortgage. If it’s affordable one way, then it should be the other.”
Craig Fish, Director at Lodestone Mortgages & Protection, says: “We are seeing a worrying trend of lenders offering people untold and unjustified amounts of unsecured debt. The bigger issue, however, is when a client looks to remortgage to consolidate this debt and the same lenders are refusing the mortgage based on affordability failures. It seems it’s more favourable and profitable for lenders to have unsecured debt as opposed to much safer secured debt. If left unchecked by the FCA, this is a worrying trend that could result in the next banking crisis.”
Kylie-Ann Gatecliffe, Director at KAG Financial, says: “After being in financial services for eighteen years, this is one of my biggest frustrations – which we as advisors see every week. Not only are banks offering large credit card limits and loans – to clients with very few affordability checks. Car finance is just as bad if not worse.
“We saw a client recently who was earning £25,000 yet had car finance of £60,000. Very little affordability checks are done on this type of finance, yet it often leads to CCJ’s and defaults, destroying a clients credit score for a good few years. Mortgage affordability is assessed so very differently which is why many people feel it is unfair and old fashioned.
“We have seen a huge uplift in the amount of debt consolidation cases we are doing recently, and many of these clients are consolidating loans that they couldn’t really afford in the first place. Whilst we can push this back onto the consumer and say they should have known better, where does the bank come into play with responsible lending?”
