LENDERS NEED TO BE EQUIPPED WITH GREATER FLEXIBILITY FOR ADVERSE CREDIT
Despite the very well-publicised challenges in the economy – inflation, mortgage rate increases, wage stagnation – buyers are still looking to buy their next home.
There are many reasons for this – all interesting but all far too nuanced for a breezy blog post promising to be about adverse credit lending – but we know people want to buy, and lenders need to facilitate that.
The current market challenge
Since launching our residential mortgage range, we’ve talked at length about the flexibility lenders need to provide in areas like LTV and LTI to help homebuyers catch up with increasing property values.
But another key area of meeting current homebuyer needs is for individuals with a history of adverse, anywhere in the last 5 years.
Why is this so important now?
Well while the Covid apps might have vanished from our phones, the effects of several lockdowns – combined with the war in Ukraine’s impact on energy bills, and last year’s disastrous mini budget – has left more people with a history of adverse effects than you would expect.
Just so you know I’m not making it up, here are some stats:
- Citizens Advice Bureau dealt with 2,120 debt issues a day in 2022
- There were 49,000 CCJs in Q3 of 2022
- 74,000 mortgages are in 2.5% of the outstanding balance or more
Now, again, to give myself a get out of jail free card – the reasons for all of these quite big numbers are too nuanced to lay the blame squarely at one event.
But what we know is this: more and more people want to buy their next or first home, as more and more people give themselves the credit history that would previously count them out of it.
What this needs is a lender who isn’t going to take a – to borrow a very old and worn out cliche – computer says no approach to your clients.
Now we love technology and what it offers to the mortgage process, but we put that at the places that have the most impact, and free up people to do the things that matter; like take a rounded view to underwriting and case management which may find a way to say yes.
Just simple things like considering:
- Mortgage arrears in the past 6 months
- CCJs in the last 6 months
- Defaults within the last 3 months
- Allowing underwriters to have a conversation with you over things like unsecured credit arrears, debt management plans and pay-day loans
What we know is that your customers want to buy their next home, but they are coming off the back of a challenging period in which to do it. Lenders shouldn’t shrink from this challenge, but instead step up to meet it.
By Sophie Mitchell-Charman, Commercial Director