In this panel debate, we explore the possibility of 2024 becoming the year of the specialist mortgage. The aftermath of Covid, multiple base rate hikes in the previous year, rising mortgage rates, the persistent challenges of cost of living, and unexpected life events have all resulted in a growing number of consumers facing credit difficulties. Joining me are four prominent lenders to delve into how specialist lenders are stepping in to help more consumers where traditional high street lenders may not be able to assist.
The Panel
David Coleman, Head of Sales at Positive Lending
Oliver Smith, National Account Manager at Vida Homeloans
Rob Barnard, Intermediary Relationship Director at Pepper Money
Anum Mahmood, Key Account Manager – Specialist Distribution at The Mortgage Lender
Mark Hollands, Head of Sales & Distribution at Bluestone Mortgages
DC – For those who may not be familiar with your lending services, please provide a brief overview of how your products can assist credit impaired home buyers and movers.
OS – Vida Homeloans is a specialist first charge mortgage lender. We help borrowers across the adverse lending spectrum. This might include a client who may have no adverse but still needs our assistance as they may fit in a specialist category due to income type, property type and location, or even visa status. Increasingly we are seeing a broad range of borrowers needing help.
RB – First and foremost, we look for reasons to say yes. This is supported with our clear, transparent criteria, with different product categories to meet the requirements of customers with different levels of credit impairment and recency. And we support this criteria with a straightforward approach to underwriting – we don’t use credit scoring to determine a lending decision or product selection. No value limit on CCJs and defaults, and no need for them to be satisfied. Recent unsecured missed payments are not factored in the decision. We give brokers access to decision makers at the outset, enabling them to discuss a case and any potential hurdles right from the start. This helps us to deliver a responsive service and quick turnaround times, which is important for credit impaired customers, who have often been declined by a lender already, which can make the process very time sensitive.
AM – Our product range is designed to help a variety of customers whose needs may not be met by traditional lenders, which can sometimes be due to their credit background. Our range may accommodate for more recent or significant credit episodes, including up to 4 defaults and 3 CCJs in the last 36 months, as long as there have been none in the last 6 months.
MH – Bluestone is a leading specialist lender that enables consumers who have complex credit to obtain a mortgage. Our products and proposition are tailored for the majority of credit impaired scenario’s. Our products are broken down into five tiers based on the severity of the credit impairment. We assist with light adverse such as a poor credit score, all the way down to heavy adverse i.e. discharged bankruptcy/CCJ’s/defaults/DMP’s/IVA/missed payments.
DC – A sad reality is that more people will have, and potentially continue to be, financially impacted in one way or another, because of this, have you seen an increase in clients with impaired credit through 2023 to now?
OS – Unfortunately, more people are falling behind on debts. Many borrowers rolling off two year and three year deals secured in cheaper times are finding affordability a real issue – particularly if like most borrowers these days their affairs are not straight-forward and the labour market is beginning to soften. This growing stress is evident in the shocking statistic that on average 2,296 CCJ’s were issued daily in the British Isles in Q4 2023 alone. As we operate in this space to help clients in adverse credit situations, we do naturally always have a steady flow of enquires.
RB – There’s definitely increasing demand. According to the latest Pepper Money Specialist Lending study, 15.16m adults in this country have experienced some sort of blip on their credit profile, and 6.92m have done so within the last three years. Impaired credit customers often have other elements of complexity to consider as well. Our Specialist Lending Study found that 43% of people with adverse credit say the level of their unsecured debt has increased in the last 12 months. Our study found that 57% of people with adverse credit are concerned that their level of outstanding debt will make it harder for them to get a mortgage. At Pepper, we have no limit on debt-to-income ratio.
AM – The last couple of years have seen the impact of the COVID-19 pandemic, rising cost of living and rising interest rates for the first time in many years. Inevitably this may put a strain on some finances, and market reports indicate that unsecured and secured arrears are increasing. Fortunately, due to stress testing applied to mortgage affordability, there are generally a reduced number of reported mortgage arrears or severe credit problems when compared to the 2008 financial crisis. What is also positive is that there are plenty of specialist lenders, TML included who may be able to support those customers who need a lender with a more flexible and understanding approach.
MH – Yes. Impaired credit has been on the rise for years, in particular over the last 18 months due to rising interest rates, inflationary pressures and the cost-of-living crisis. For instance, over 3900 CCJ’s a day are registered! We’ve also seen a rise in light adverse, whether it be missed credit card payments, utility bills or parking fines that may result in defaults.
DC – The mortgage market still feels a little blinkered to adverse borrowing options with comments such as “I don’t get adverse enquiries” or “this isn’t my client demographic” potentially leaving many consumers underserviced. Is more education needed to both brokers and consumers on otherwise lesser-known mortgage options available to them?
OS – I believe that through a comprehensive fact find and a copy of the client’s credit file, a broker can see if a client has any adverse credit or may become susceptible to it. Borrowers do seem aware of it in so far as this year to March the Citizens Advice Bureaux in England and Wales dealt with 1,192 debt issues every day*. Of course, being aware of it and acting on it are two very different issues.
For brokers the key is to be aware of the solutions that are out there. Lenders and packaging partners like Positive Lending are always happy to discuss any case in further detail to give comfort of a case proceeding prior to submitting a full application.
It’s about remembering that mortgages lending is often about criteria which encompasses those elements a lender will use to reflect their risk appetite. It breaks into two parts. The person to whom the loan is made and the security upon which the loan is made.
RB – More than 15m adults who have experienced a blip on their credit profile is a lot of people, so I am sure that most brokers will encounter customers with credit problems. We need to think about changing attitudes and habits as much as education. It’s been said before, but specialist now is
mainstream and those brokers who familiarise themselves with the market – or partner with a specialist firm – will be those best placed to help more customers both now and into the future. And, if you can help a customer who was uncertain about their options in getting a mortgage, then you build trust and loyalty, which can help deliver long-term relationships and new
referrals.
AM – I think we need to look at what a ‘typical’ customer really looks like. It just needs a change in circumstances such as redundancy, illness or relationship separation which could put financial strain on someone irrespective of their income. I do think that collectively the industry can do more to educate customers about their options should they experience adverse credit, but also for brokers to ensure they are maximising the opportunity offered to their business by helping customers with recent or historic adverse credit achieve positive outcomes. There are over 250,000 CCJs registered per quarter for example, that’s 1 million a year – you’d think there is a good chance a number of those could be potential clients who have been stable for the last 6 months, and either have or are looking for a mortgage. So, it’s for brokers to ensure they know what lenders could help them, rather than turning customers away.
MH – Absolutely! This continues to be an ongoing issue, both broker and consumer awareness. Our research shows that 42% of consumers opted out of approaching an adviser, as they believe obtaining a mortgage is unrealistic. Adverse comes in all shapes and sizes – it’s unlikely that an adviser has never had a credit score fail. Where do they go then? Do they invest time in supporting the applicant or turn them away? Furthermore, the emotional connection between adviser and applicant through difficult times is highly rewarding. The level of appreciation is superior to submitting a ‘bog standard mortgage’. This turns a customer into a client for life, increases chance of referrals and evidently the demand is very much there. Advisers should take time to understand the benefits of advising in this part of the market.
DC – Whereas mainstream lenders seem happy to support the ‘tick box’ clients, the specialist mortgage market is ever evolving. What innovations can lenders do to further support credit impaired and adverse mortgage clients?
OS – There are many gaps that need filling in the current market. I am unsure if one lender can be the answer for the innovation needed. As I mentioned earlier – criteria are key and often a huge point of differentiation between lenders, so it is worth knowing what is available. It really is key to keep deep relationships with key partners and packagers in these times as they are very often better resourced and more informed to deal with difficult cases as it is their core business. Lenders’ propositions are the sum of a few variables – each of which matters in its own right but its importance varies depending on market, regulatory and funding environments. SO individual solutions and innovation comes in many types. Partners and packagers often know these propositions inside out.
RB – I think it’s about doing the simple things well as much as it is about innovation. For example – clear, transparent criteria and underwriting to that criteria, looking for reasons to say yes, rather than no. At Pepper Money, for example, we have a reputation for providing outstanding service and making our underwriters available to speak to brokers. This means that brokers can have a meaningful conversation with a decision -maker without having to hang on the phone for hours to do so. We make decisions based on a customer’s circumstances without compromising on speed, so brokers can submit an application in confidence that it will proceed quickly and with certainty.
AM – One of the biggest advantages we have as a lender is that we have a person underwriting each case. There isn’t a computer says no approach to how we assess an application in the specialist space, which offers real advantages for customers and their brokers to ‘get things done’. It’s amazing how having direct access to underwriters means that issues can be resolved much quicker by a phone call rather than multiple email exchanges. The underwriter can get more comfortable with a situation as they fully understand the case, which is a great outcome for customers.
MH – The specialist lending landscape is a very competitive market and is constantly evolving. This can only be great from a consumer standpoint as lenders utilise research methods and data analytics to adapt their propositions to the ever-changing circumstances that potential borrowers are facing. And it’s not just about products and propositions either. Specialist lenders have not traditionally been associated with technological innovation but here at Bluestone, we’ve been harnessing the power of technology by incorporating numerous automation features, such as open banking, to help streamline the mortgage process.
DC – Spending a lot of time in the car visiting brokers, every other advert on the radio is promoting IVAs (Individual Voluntary Arrangement), people may opt for this as a solution to become debt free without potentially fully understanding the consequences of limiting their ability to secure future financing. Will more lenders need to adapt their offerings to support these otherwise un-mortgageable clients?
OS – These adverts really are adding fuel to the fire, and I believe almost glamourising the ability to write off your debt. IVA and Bankruptcy are very much the more challenging end of the adverse credit spectrum and there really needs to be full transparency from the firms entering these individuals into such schemes. More lenders offering the ability to lend to such clients can only be a good thing as ultimately it offers wider choice to the end consumer and offers the prospect of home ownership or refinancing more achievable. However, it will depend on individual lenders’ risk appetites and funding models as to how willing and able they can be to support these kinds of borrowers. The lender needs to be comfortable with the higher risk. The value of an advisor in these scenarios in more pertinent than ever before.
RB – Any forward-thinking lender will be constantly reviewing customer needs and requirements and adapting its criteria in a responsible way to meet customer demand. For example, affordability is a bit issue for customers currently and so at Pepper, we have taken steps to help customers consider all their income. This includes accepting 100% from additional income such as overtime, car allowance, monthly bonus or second jobs. Good proactive brokers can help their customers to make the right decisions and best prepare themselves for securing a mortgage in the future.
AM – I think there is a lack of education when it comes to financial decisions for consumers who may have unsecured credit that they are struggling to keep on top of, which is why some may opt for IVAs when this isn’t necessary. I think the market is constantly evolving, however, there are several lenders already able to help those customers who have experienced credit issues such as IVAs, defaults, DMP or bankruptcy, so I’d always advise brokers if they’re not sure, to reach out to a specialist distributor like Positive, and they may be able to identify a suitable lender.
MH – There are a handful of lenders who will support clients with current or recent IVA’s. Bluestone is pleased to be one of those lenders. Given this is deemed as high up the risk curve it’s unlikely that non specialist lenders will have the appetite. Furthermore, lenders like Bluestone have experience in supporting such cases. Lenders will continue to innovate as market dynamics change, but they’ll balance risk vs commercial objectives.
DC – Consumers approaching their bank for borrowing typically aren’t aware that there are alternative options available to them. Do you think more traditional mainstream lenders will adapt their offerings to support credit impaired clients or will the specialist lender still lead the way?
OS – The line is certainly becoming more blurred between specialist and mainstream. However, it is incredibly difficult to write specialist business safely at scale when it requires manual underwriting and very specific case ownership and management, that is when smaller lenders operating full-time in these areas really shine. So, while the traditional high street lenders do seem to be loosening their credit profiling in some scenarios, and smaller Building Societies are entering the market in search of better margins, there is still plenty of room for focussed specialists who can really understand the real risks of a complex and difficult case. In that respect, true specialist lenders will always lead the way.
RB – Mainstream lenders often flex their threshold for impaired credit depending on lending appetite and may sometimes accept a customer with some missed payments, but on other occasions decline a customer with similar circumstances. The problem is that mainstream lenders operate at large scale, using automated decisioning models that are often opaque – so it can be difficult for brokers to offer their customers any certainty. The real benefit of a specialist lender is that it can take a hands-on approach to underwriting cases, based on clear published criteria, providing certainty and consistency and this confidence of decision is so important to customers with impaired credit. There will always be a role for specialists.
AM – The market continually evolves, and the ‘traditional’ lenders may increase and decrease their appetite for certain customers. However, many of these are still highly automated powerhouses when it comes to volumes, so I still think specialist lenders will lead the way when it comes to offering greater flexibility and a more pragmatic approach to decision making. Of course, it isn’t just credit where specialists can really add value to brokers and their customers, but also the more flexible ways they’ll assess complex income structures and self-employed customers, which means that specialists could be the solution for those looking to maximise their income, as well as those needing options based on their credit profile.
MH – Mainstream lenders have made small and cautious adaptations to their approach to adverse credit, but ultimately this firmly sits in the specialist market. Specialist lenders have the infrastructure, experience, and risk appetite to lead the way and I don’t see this changing.
*Source from OS comments – The Money Charity Report March 2024
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