"As a mortgage broker, you are a trusted adviser for your customers"
In August, industry regulator Ofgem confirmed the energy price cap would rise by 80% from 1st October, from just under £2,000 to more than £3,500 for the average household.
In response to this, incoming Prime Minister Liz Truss, made it one of her first duties to limit the financial burden on households, with the introduction of an Energy Price Guarantee that means a typical household will pay no more than £2,500 per year for each of the next two years, while the energy market returns to a more normal state.
This measure will certainly help to ease the pressure on household finances, but it won’t remove it altogether, concerns continue to grow about how families will make ends meet.
One organisation, called ‘Don’t Pay’ is a movement that has already gained the support of nearly 200,000 people. It claims that once its supporters number one million, signatories to the organisation will all ‘strike’ by refusing to pay their fuel bills.
This is a very concerning message.
People are concerned about their finances and they are keen to take control. But the approach is entirely misguided and wilfully refusing to pay for utilities could lead to a number of problems in the future.
Setting aside the impact it could have on a household’s ability to secure favourable energy tariffs in the future, refusing to pay bills could also impact their mortgage options.
At Pepper Money, we are just one lender that is able to lend to customers who have a record of missed payments and we do so responsibly because we individually underwrite every application so that we can make an assessment as to the nature of the missed payments and the applicants’ ability to maintain their mortgage payments in the future.
As part of the underwriting process, all specialist lenders need to make an assessment as to whether historic missed payments were the result of being unable to make those payments because of circumstances, such as illness, divorce, redundancy or a reduction in income. Simply choosing not to pay a commitment, without a valid explanation could have a negative influence on an underwriting decision.
This is not to say that people who miss energy payments in the coming months will be excluded from the mortgage market, but it is a warning that ahead of taking any such action, people should give serious consideration to the potential consequences.
And this is where brokers have a key role to play. The Don’t Pay movement has gathered momentum because people are anxious and are looking for guidance. That guidance is most effectively delivered in the form of professional financial advice and, as brokers, you are best placed to deliver that advice.
Be proactive and speak with your customers. For those who are struggling, the best option is to maintain communications with those organisations with whom they have regular payment commitments. If short-term concessions are required, most organisations will have processes in place to accommodate these.
If there is an impact on a customer’s credit file, there will be lenders who are able to offer competitive mortgage options in the future – but the circumstances around any adverse credit on a credit record are important. A clear narrative about a customer engaging with creditors throughout a difficult period in order to negotiate a troubled time for their finances will be viewed more favourably than someone who has refused to make the payments that are due.
There may be other options to help your customers as well and, if short term cash flow is an issue, debt consolidation may provide a solution in some circumstances. So this may be worth considering.
As a mortgage broker, you are a trusted adviser for your customers. And now, more than ever before, is a time when they need expert advice to help them best navigate the coming months.
