"With the number of adverse credit cases only likely to grow, advisers need to be really drilling down on their clients’ needs to find the right solutions for them"
Not all things pan out as promised or as planned. Don’t worry, this is not another Brexit bashing article – as tempting as it might be.
Things happen, life can take us in many different directions, some of our own making and some not, and many can impact us financially when we least expect them. This can lead to some minor, or major credit issues - maybe even a missed mortgage payment or two along the way. In short, both the simplest and most complicated set of circumstances can result in borrowers slipping into the grey lending band. A band which many high street and mainstream lenders continue to ignore.
With that in mind, it was good to see the latest survey from Insights, Barcadia Media's independent market research portal, highlighting this issue. It found that - when asked whether they support mainstream lenders becoming more open to lending to consumers with adverse credit – 94% of brokers said they believed that it will be good for the market. Of these, 76% said the decision by mainstream lenders would offer more choice for consumers and 16% said it could mean better rates on adverse credit products. Notably, 89% of brokers surveyed at the recent Financial Reporter Specialist Lending Roadshow said they have had clients with adverse credit.
It’s great to hear a true intermediary voice on this area of lending, and this data helps outline just how big a proportion of client bases need these types of products. It also highlights just how close lenders should be getting to distributors and intermediary partners to understand the changing needs of these types of clients and the historical issues they are having to overcome. Not to mention how important the advice process is for such borrowers.
Demand for increased product numbers should come as no surprise on the back of recent data from Moneyfacts which suggested that the number of credit-impaired residential mortgages has declined by almost a third in the last six months. The overall number was reported to have fallen from 851 to 590. On a more positive note, the data also showed that the average two and three-year fixed rates for credit-impaired mortgages have fallen by 0.13% and 0.30% respectively over the same time frame.
Lending of this kind has long been the domain of the more specialist end of the market rather than the juggernauts of the high street. Building societies have also proved to be strong advocates of lending to customers with relatively minor cases of adverse credit. Many of the smaller societies have slightly differing criteria but the most successful ones are driven by flexible offerings, transparent criteria and accessible underwriters. Factors which also apply to newer specialist lenders.
Pepper Money recently stated that it had increased the number of completions including adverse credit by 91% in 2018, when compared to the previous year. The lender completed 1,620 mortgages for customers with adverse credit history in 2018 and also increased the value of adverse credit completions by 94%. The breakdown of these made for some interesting reading.
Around 30% of completions included at least two factors that could lead them to fail a standard credit score. The most common combination was first-time buyers with adverse credit history and CCJs, which accounted for nearly one in five of all of Pepper Money’s completions. Self-employed borrowers with adverse credit history and CCJs accounted for one in 10 cases, and 1% of completions were self-employed first-time buyers with adverse credit history and CCJs.
These examples are a shining beacon for the merits attached to a good, professional advice process. With the number of adverse credit cases only likely to grow, advisers need to be really drilling down on their clients’ needs to find the right solutions for them. And hopefully more product options will emerge to help meet this growing demand.