Rejected for credit: loyal customers turned down as ‘too risky’

westminster bank london 1950s

John Howes must be one of NatWest’s longest-serving customers – he opened his account just two years after the end of the second world war and is still with the bank today. His wife became a customer around 1952.

But all those years of loyalty to the now state-owned bank didn’t seem to count for much when the couple, who are aged 85 and 83, approached it for a short-term loan so they could make a cash offer on a retirement flat while they were selling their house.

With the property valued at £785,000, plus investments and a decent combined pension income, they were hopeful NatWest would agree to their request for a short-term bridging loan of £165,000 lasting for, at most, a couple of months – but all it was prepared to offer them was a £5,000 personal loan or a £2,000 overdraft.

And it appears their plight wasn’t unusual. One bridging loan provider told Guardian Money that it is seeing growing demand from borrowers who are being turned down by the banks because of their age. Bridging loans are short-term secured loans designed to bridge a temporary cash shortfall when buying a property, and demand for them has surged – but they can be a risky and expensive option.

The good news for Howes and his wife is that, following Guardian Money’s intervention, NatWest has changed its tune and is now helping them to buy their new home.

Howes has been a customer of NatWest since November 1947 when, as a teenager, he signed up with Westminster Bank, which in 1968 merged with National Provincial Bank to create National Westminster Bank. His wife, who worked as a schoolteacher, followed his lead just a few years later.

One member of staff suggested a mortgage – but we wouldn’t have qualified
John Howes

The couple own a four-bedroom house in south London, but recently decided to downsize. They found a two-bedroom retirement apartment in an area they really liked, but needed to sell their home.

“We wanted to bid for the apartment as soon as we saw it because the demand for two-bedroom flats is so great – we didn’t want to lose out,” says Howes, who formerly worked in local government in London. The estate agent indicated that their house could be sold in four to eight weeks. However, they were separately advised that if they were able to make an immediate cash offer for the flat, this would put them at the front of the queue.

The couple offered cash, and then approached the bank for the short-term loan. Howes says that as they were seeking a relatively small loan for a short period, he imagined that the bank wouldn’t have a problem, bearing in mind the value of the property they were selling, and their annual income and investments.

Howes says the bank told them it had stopped offering bridging loans two years ago on the grounds that they were “too risky”, and instead offered them a loan or overdraft for just a tiny fraction of the amount they needed, which was “no use at all”. He adds: “One member of staff suggested a mortgage – but that would have been for a minimum of three years, and anyway, at ages 85 and 83 respectively we wouldn’t have qualified.”

The couple looked at obtaining the money from elsewhere but now don’t need to, because NatWest has decided it will help them after all. After Money passed on the details of their case, the bank investigated and acknowledges that even though it stopped offering bridging loans in 2013, it could have done more to assist them. It has been in touch with the couple and says that subject to a few standard conditions, such as confirmation of the investments held and estate agent views on the sale of the property, it has agreed to provide an unsecured overdraft facility.

“We want to be a bank that our customers can trust, and it is instances like this where we should do everything we can to help our customers with their aspirations. We are very sorry that we let Mr and Mrs Howes down in this instance by not offering an alternative solution. We have contacted them to apologise and we’re now helping them to buy their new home,” a bank spokeswoman says.

Howes told us this week that he was delighted that NatWest was providing them with an overdraft sufficient for their needs, adding that it was “a victory for the Guardian’s intervention”.

Andre Bartlett at bridging firm SPF Short Term Finance, part of mortgage broker SPF Private Clients, says that over the past few years banks have increasingly “discriminated against” borrowers because of their age. “Most of our clients approach us because their bank has refused to help where logic says it should have done,” he adds.

Bridging loans are usually taken out to help someone buy their next property if the sale of their existing one hasn’t been completed, and the tightening up of the rules on standard mortgages has brought them into the mainstream.

SPF specialises in placing borrowers with specialist lenders. These are traditionally more expensive than the high-street banks but, Bartlett says, don’t have the same restrictions on the type of funding they will do, so they can be more flexible – and sometimes that can outweigh the extra cost.

With this type of finance, the interest is added into the loan, so income and affordability is assessed in a different way to a mortgage, which can suit “asset-rich but income-poor” borrowers such as the retired or people downsizing.

“On a case like this we would expect to obtain terms at 0.59% per month, with the interest added each month. There would be a negotiable arrangement fee of up to 2%, and no exit fee when the borrower redeems – so they only pay for the time they borrow. This is a classic bridging loan and one we are increasingly required to arrange,” says Bartlett.

Earlier this year, Benson Hersch, chief executive of the Association of Short Term Lenders, said that with lending into retirement “becoming an increasing no-no for high street banks, there is a growing need for both older people and their financial advisers to look for more creative options”.
The professional couple

Ask David and Hannah James* from Bristol about the availability of easy credit and you’ll receive a derisory laugh, writes Miles Brignall.

The couple own their £600,000 home outright, have good jobs and no debts. But, having spent seven years living and working in Australia before returning to the UK a year ago, they were recently told by their bank, Lloyds, that they would be unlikely to get a mortgage.

They’d inquired about moving house and taking out a small mortgage on a bigger property, borrowing a fraction of their home’s value, but say they were told it was “unlikely” to be approved. An application to open a bank account with Santander was also turned down.

The final straw came when Virgin refused them a £5-a-month sim-only tariff – despite the fact it supplies their broadband, and they have never missed a payment. “We are both on the electoral roll, have professional jobs, pay all bills promptly with no current outstanding debts, have a healthy bank account and have never been in debt, or been turned down previously,” Hannah says.

The couple were even more bemused when David registered with credit reference agency Experian and found he had a near-perfect score of 999 out of 1,000.

However, a bit of digging by Guardian Money has revealed that they appear to have been refused credit because they have not required it recently: David doesn’t have a credit card, while Hannah does but rarely uses it.

According to James Jones at Experian, lenders looking at applications like to see a “proven track record” of credit management. “Their recent applications may have hit stumbling blocks because they have been out of the country for a number of years and, as a result, their credit histories are on the thin side. Credit scores look at the average age of your credit accounts, and your current borrowing and credit limits – a measure of your creditworthiness – with other providers.

“Being on the electoral roll is also important as it can be a constituent of credit scores and also supports ID checks. While both are registered, these updates didn’t come through to us from their councils very long ago, so it is possible they weren’t registered when some of their applications were made.”

Jones says this may have been why they were refused credit. He also says lenders should tell applicants the main reason for turning them down, although Guardian Money is often told by those who are refused credit that no reason is offered, and requests to know why are invariably refused.

In the meantime, Jones suggests the couple apply for a credit-builder style credit card such as those offered by Capital One or Aqua. “By spending a little on these each month, and paying the full balance to avoid interest, you can quickly build up some track record which should then help other applications,” he says. He also advises that they apply to the other credit reference agencies for their files.

In the meantime, the Jameses are left bemused at being penalised for apparently doing the right thing financially. “It’s frustrating – we now have to spend six months creating a credit history to demonstrate good financial behaviour, all because of good financial behaviour,” David says. “It’s crazy.”


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