Mortgage lenders warned over risk from gambling addicts as credit card ban takes effect

Mortgage lenders warned over risk from gambling addicts as credit card ban takes effect


The ban, which comes into force today, could mean mortgage lenders face pressure from gamblers who are hiding an addiction to give them finance, said the group.

It is feared that problem gamblers may turn to the extreme measures, such as remortgaging their house while concealing their reasons to the bank, so that they can consolidate their gambling debts or raise more money to feed their habit.

Just under 400,000 people in the UK are considered to be ‘problem’ gamblers while 1.8 million people are thought to be ‘at risk’ gamblers, according to a report by the National Audit Office. Furthermore, some 800,000 people used a credit card to gamble in 2018, according to UK Finance.

The Gambling Commission’s ban on credit card gambling has been welcomed by charities, campaigners and financial services as a positive step towards stopping gamblers playing with money they do not have.

But Adam Bradford, co-founder of gambling addiction support group, Safer Online Gambling, warns those with an addiction will search for alternative forms of credit to feed their habit, a risk he says banks must be vigilant of.

Although cutting off the use of credit cards is positive, said Bradford, it could lead to unintended consequences for banks.


The psychology of an addict

He said: “Mortgage lenders need to think about the psychology of an addict. If they have been cut off from one form of credit they will find another means to feed their habit.”

One of the consequences, said Bradford, is that gamblers may start to use their debit rather than credit card, increasing the number of gambling transactions that appear on their bank statements.

He thinks it is more likely, however, that gamblers will turn to other forms of hidden credit.

He said: “The habit starts small, with manageable amounts such as a few transactions on a bank statement but once those bets get bigger addicted gamblers start to turn to friends and family, pay day loans and eventually remortgaging the house.

“From a mortgage lender’s point of view, anyone with a small gambling problem, is going to be a significant risk. They are probably not of sound mind to take on the debt.”

Bradford said lenders will need to check more thoroughly why borrowers are consolidating debts or raising money on their house, to protect the homeowner and themselves.


How do mortgage lenders detect harmful gambling behaviour?

Lenders say in their underwriting policies they do not allow capital raising for gambling purposes and ask borrowers to state why they are raising additional money through a remortgage.

If the borrower conceals the reason is for gambling, the lender is none the wiser.

Unless the customer states they have gambling debts, firms cannot easily spot this vulnerability and do not check credit card transactions to see how debts were run up.

Instead they check how much of their available credit a borrower has used, but again most lenders admit to being blind about how these debts were accrued.

Most of the big banks do not manually underwrite mortgage applications so do not see bank account statements.

If there was an increase in gambling transactions on bank statements, as an unintended consequence of the credit card ban, unless the activity caused borrowers to incur fees or use an unauthorised overdraft, they would go unnoticed.

Furthermore, even when a case is sent to an underwriter for review, gambling activity itself does not result in a decline.

For example, Nationwide said a mortgage applicant who gambled would not be declined as along as it was a well managed habit and within the borrower’s means.

An additional measure carried out by Kensington, a lender that manually underwrites all applicants, is to look for recent unsecured borrowing that appears to be supporting a gambling habit.


Role for brokers

Brokers can act as the first line of defence by spotting harmful gambling behaviour and talking to borrowers about how this will affect their chances of getting a mortgage.

Kala Sreedharan, sales and operations director Mojo Mortgages, said: “As a broker, we have a duty of care to both our customers and our lenders. A recent case saw us having to decline a mortgage application due to excessive gambling on a customer’s bank statement.

“The customer had £750 worth of gambling outgoings, while their net income was £1,500. This person also had several items on finance, and therefore, after all these payments had been taken out of their account, they wouldn’t be able to afford the monthly mortgage payments and would have been declined by a lender.”

Some lenders, such as HSBC and Nationwide allow bank account customers to switch off their ability to spend in betting shops and sites but this decision has to be made by the gambler.

Lloyds is currently developing a pilot with Gamban, software that blocks gambling sites from users’ devices.

Most banks also have telephone support services for vulnerable borrowers struggling with debt.


Open Banking could help further

A report by the Money and Mental Health Policy Institute into how financial data could be used to support customers found that some people wanted banks to step in without being asked.

Just over 40 per cent of people surveyed for the study said they would want their bank or building society to take immediate action to protect them, such as blocking payments, if there was a spike in their gambling activity.

Experts say the solution to a more effective way of helping borrowers to manage gambling lies through Open Banking.

Lisa Fretwell, managing director of data services at Experian, said: “An increasing number of lenders are using Open Banking as part of their processes to understand a customer’s spending commitments.

“The applicant needs to opt in and provide consent to share their data, which they have full visibility of.

“Using this trusted data from current accounts can help mortgage providers to make a better and more informed decision because they can see if and how much an applicant is spending on gambling in total and as a proportion of their income.”