"Advisers are likely to be the ones attempting to piece together just exactly what has gone on"
And, I suspect, for the vast majority, it will. The clear and present danger that the virus plus lockdown – and all that comes with it – means for many people’s livelihoods can not be underestimated, and it’s been absolutely right that the Government has stepped in to support as many people as possible.
For mortgage borrowers – given it is likely to be the biggest single outgoing each month – the priority has been mortgage payment holidays, and the industry moved fast on this and has also responded in the right way when it comes to the impact (or otherwise) the taking of such holidays might have on an individual’s credit score.
In any normal situation, the holiday would be marked on the report, but not here and that is obviously right and proper. However, the mortgage is not going to be the only outgoing for homeowners and, while there is the opportunity to apply and secure similar holidays for other payments such as car loans or credit card payments, there is a danger that missed payments – which have not been agreed between the provider and the client – will cause problems.
There are many thousands of companies who provide information to the credit reference agencies, and of course many more who carry out credit searches when an individual applies for new credit.
And it’s here where we find the potential for future trouble, not only for the individual themselves but also for their mortgage adviser in the future as they attempt to get full transparency on what a client’s credit score actually looks like. It might be very different to the perception of the individual, for example.
As mentioned, during this time, the big focus has been on securing payment holidays from mortgage lenders. But have they also done the same with their car finance, their store cards, shorter-term loans, and the like? Is a holiday even available to them? Might they simply assume it is and cancel a direct debit without truly knowing?
And then we have the regular monthly payments for utilities, mobile phone contracts, and the like. Again, when money is tight, individuals may decide to cherry-pick which bills they can pay, without speaking to the provider - assuming that this Covid-19 period gives them special dispensation.
For those individuals who may not be particularly financially savvy, or indeed those who are going through a very stressful lockdown, there is always the chance that decisions will be made which seem right at the time but prove wrong later down the line. A missed payment of a mobile phone contract might seem like a small matter but could have greater repercussions for the individual.
It doesn’t take a genius to work out that the potential for credit search blemishes throughout the next few months are much higher than pre-virus. And many individuals may not even be aware of the consequences of their actions, which means that when they are applying for future credit, they may find their situation changed considerably.
Advisers are likely to be the ones attempting to piece together just exactly what has gone on, the potential arrears that have stacked up, and the impact this will have on the ability of the client to secure a mortgage. It is perhaps no wonder that many are predicting a boom in residential specialist lending in the future, not just from those who slip into arrears but also those who may have to move to a different form of employment because of the virus’ impact.
And of course, we must think about how lenders are going to view the finances of existing and new borrowers in light of the virus lockdown period, the potential furloughing of staff, how their incomes are impacted, etc. We’re likely to see changes to affordability assessments and criteria as a result and again with full transparency from the client it’s going to be a difficult mortgage advice path to trek through.
Having access to detailed credit reports/scores and banking details will be a vital part of the advice process for advisers in this new environment, because without it, you are likely to be flying blind. Clients might be unaware of their existing situation, so utilising our new Credit Assess product, will not only give that information but will quicken up the pre-sales work and ensure you are not left going down blind alleys based on a client’s mis-interpretation or misunderstanding of what the virus and lockdown has done to their finances/credit score.
In this market forewarned will be forearmed – of that there is no doubt.
