"What we can’t afford to do is to assume that borrowers sitting in this ‘adverse’ corridor just beyond the mainstream are not credit-worthy in their own right."
In my previous article - The impact of unsecured credit events on residential borrowers - I spoke about how boundaries are being blurred across the lending spectrum as a cross-section of credit-worthy potential borrowers and existing homeowners have been, and continue to be, impacted financially by events beyond their control and by conditions never experienced before.
I only wrote this piece a few weeks ago but this short period seems to have lasted an eternity due to an ever-changing economic landscape where we have learned to expect the unexpected.
It’s inevitable that such an extraordinary period of uncertainty has filtered down through the residential marketplace. Leading up to this time, there were already a growing number of questions being posed around inflationary pressure and the impact of heightened energy prices. Now we are also seeing valid concerns being raised around where mortgage rates may end up, how much the Bank of England base rate may rise and what will happen to house prices.
It would take an incredibly bold person to stick their neck out at this particular juncture to answer any of these questions with any great certainty and good luck to those who might try. However, what I am confident about is that we will see a continued uplift in demand for specialist residential lending as a growing number of borrowers, both existing and potential, are being pushed beyond the criteria and underwriting limitations of many mainstream lenders.
To coin a cricketing phrase in light of the ongoing Men’s T20 World Cup, this corridor of lending uncertainty is widely known as being ‘adverse’. Now adverse is a term which carries plenty of nuance, especially in the intermediary mortgage market, but what we can’t afford to do is to assume that borrowers sitting in this ‘adverse’ corridor just beyond the mainstream are not credit-worthy in their own right.
Many may simply be self-employed, have multiple income sources or have had some minor credit issues, whether historic or more recent. Factors which might help explain why broker queries were suggested to be ‘dominated’ by adverse credit in Q3 2022.
This was according to the Primis Mortgage Network which recently outlined that, in total, its product desk helped appointed representative (AR) advisers with 8,316 adverse queries in Q3 2022, an increase of 707 when compared to the previous quarter. The quarter also saw a reported increase in the number of queries regarding self-employed mortgages. This comes after many lenders tightened their criteria for self-employed applicants in recent years, which Primis says has made the application process more complex.
In addition, a rise was also noted in the number of queries on income to affordability, following first-time buyers seeing the amount they can borrow decrease by as much as 30%.
Despite rising living costs placing extra pressure on many consumers, this data – quite rightly – helps underline that there are still options available to borrowers in complex financial circumstances. And by working closely with specialist lenders, advisers can continue to play a key role in ensuring that credit-worthy clients still have access to the types of solutions which meet their ongoing needs.
