The Intermediary – April 2025 - Flipbook - Page 49
SPECIALIST FINANCE
Opinion
Savvy shopping and
mortgage declines
M
any consumers
consider interestfree credit a savvy
way to manage
large purchases.
Whether it’s a
new kitchen, a bathroom renovation,
or high-end electronics, spreading the
cost without paying interest can seem
like a sensible decision.
However, for mortgage applicants,
these borrowing decisions could
have unintended consequences when
securing a home loan.
While these financing options
don’t accrue interest, many
mortgage lenders still consider them
outstanding debt, which means they
can influence a customer’s debt-toincome ratio (DTIR).
A high DTIR indicates that a
significant portion of an individual’s
income is already allocated to
servicing debt. While customers
may feel confident in managing
their finances, many lenders will
take a cautious approach and
impose a maximum DTIR across
all applications. As a result, an
outstanding balance from an interestfree credit arrangement could tip the
scales, leading to a declined mortgage
application.
Affordability remains one of the
biggest challenges for mortgage
customers today. With the cost-ofliving crisis driving more people
to rely on credit, the issue is only
becoming more pronounced.
According to UK Finance,
outstanding credit card balances grew
by 9.9% over the 12 months to March
2024, with nearly half incurring
interest. While interest-free credit
arrangements don’t add to this burden
in the same way, they still increase
overall financial commitments and,
consequently, DTIR calculations.
At Pepper Money, we understand
that borrowing decisions aren’t always
as straightforward as they appear
on paper.
Unlike many lenders, we don’t
impose set DTIR limits. Instead,
we assess each application on its
individual merits, considering the
PAUL ADAMS
is sales director
at Pepper Money
broader context of a customer’s
financial situation.
If there’s evidence that a customer
can sustainably afford their mortgage
payments despite a higher DTIR, we
may still be able to offer them the loan
size they need. This can be particularly
valuable for customers looking to
consolidate debts or restructure
their finances.
While interest-free credit may seem
like a smart financial move, it can
still impact a mortgage application
if lenders consider it as part of a
borrower’s overall debt profile.
By working with lenders that
take a more holistic approach to
underwriting, brokers have options
to help customers access the mortgage
finance they need, even if they have
large outstanding credit balances in
the background. ●
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