In response, lenders need to adapt their products to ensure homeownership is accessible to all, but this is not necessarily happening at the speed it needs to. One area where there is clearly an increasing need for better lending solutions is amongst foreign nationals.

Data shows that increasing numbers of skilled workers are coming to the UK to fill acute labour shortages in key areas, such as healthcare and IT.

In fact, in the year ending March 2023, the government issued 315,018 work visas; more than double (+130%) the number issued before the pandemic – the majority of which were in health and care.

And, despite recent measures to curb migration by raising the minimum salary threshold from £26,200 to £38,700, the demand for skilled foreign workers remains strong, with projections from the Home Office indicating that over half a million ‘in-country’ visas will be granted to foreign skilled workers by 2028/29.

Yet, while the essential role these individuals play in the UK economy is undeniable, they continue to face significant barriers to integration, a key one of which is buying a home in the UK.

Addressing barriers for foreign nationals

If there’s such a thing as a British dream, it’s to own the roof over your head, and data suggests that when foreign nationals come over to the UK to live and work, that desire to become a homeowner is just as strong. Residency-related broker search terms exceeded a quarter of all criteria searches on key platforms for the first time in Q4 of 2023, according to Twenty7Tec data – that figure was just one-in-six two years ago.

However, despite a clear demand for mortgage solutions, foreign nationals often face significant hurdles when attempting to secure a home loan in the UK. Traditional lending criteria – including minimum residency periods and high-income thresholds – all designed to protect lenders, make it difficult to assess the creditworthiness of foreign nationals.

For example, most lenders require a minimum UK residency of a year – but often two years – and a minimum income of £50,000 while loan-to-value (LTV) ratios are often capped at 75%.

Due to these strict criteria – which is prevalent throughout the market – many foreign nationals end up being excluded from the mortgage market as they are often unable to prove their earnings, and if they are just moving to the UK, obviously cannot meet the residency rules.

What is surprising is why these criteria – which do not help tell lenders anything useful about the people behind the application – are still being used, instead of simply asking ‘can this individual afford to buy this property?’

This situation is not only detrimental to individuals but also counterproductive to the broader economic goal of attracting and retaining skilled workers to fill the many job vacancies in our NHS and other key services.

The need for innovative lending solutions

Given the significant proportion of foreign nationals needed to work in the UK – and the demand from these individuals for mortgage products – it is important that lenders explore innovative solutions to break down these barriers to homeownership. What lenders need to do is rethink traditional criteria in order to find new and innovative ways to meet the unique circumstances and needs of foreign nationals without compromising on financial stability.

One approach is to develop tailored mortgage products that consider the diverse backgrounds and financial situations of foreign nationals. For instance, lenders could offer more flexible residency requirements and consider alternative forms of income verification that reflect the realities of skilled workers who may not meet conventional criteria, but do have income sources that meet the affordability conditions.

Building a more inclusive mortgage market

Ultimately, all financial products – not just mortgages – need to evolve as their customers do, and as an industry, our goal should be to build a mortgage market that is inclusive and reflective of the diverse society it serves.

We need more collaboration between lenders, brokers, and regulatory bodies to help create a much more inclusive and accessible mortgage ecosystem. Not just for foreign nationals, but for all those potential borrowers seen as ‘non-standard’ by traditional criteria, for example, the self-employed and those with non-traditional income sources.

The new government has pledged to build 1.5 million homes in the next five years, but if potential homeowners – who can afford to buy – continue to struggle to meet lending criteria, they will be forced to turn to the rental market, where prices soar even further as demand continues to outstrip supply.

By breaking down barriers and embracing innovative lending solutions, we can create a mortgage market that is accessible to all and allowing more people to call the UK their home.

Praven Subbramoney is chief lending Officer at Nottingham Building Society