Flexibility is key for supporting borrowers with credit blips

Speak to mortgage brokers today, and chances are they will tell you that the clients they see on a daily basis increasingly have an imperfect credit history. The scale of the mishap will vary, but the notion that all borrowers arrive with a squeaky clean record is not realistic.

We recently published our inaugural Near Prime Index, which highlights the views of brokers about this area of the market, the particular needs of clients that fall into this category, and where there is room for improvement for lenders.

And what’s absolutely clear is that lenders need to step up as this sector grows.

The need for Near Prime

It’s no secret that recent years have been filled with challenges and pressures which have put budgets under strain. 

And it’s those unexpected one-off bills which are often to blame for the credit issues impacting borrowers. Brokers pinpointed the likes of missed utility bills, credit card payments, and even unpaid parking fines, as being the most common reasons for their clients falling outside of Prime criteria.

Those isolated issues are having an oversized impact on the credit status of borrowers, excluding them from Prime lending, despite being little indication of their ability to pay a mortgage. These borrowers have often hit a bump in the road, or suffered from an admin error, rather than suffering from ongoing ill financial discipline, and with an understanding approach from lenders they will still be able to achieve their ambitions to own a home.

That understanding isn’t always on offer, however.

Every case is different

One of the clear findings from the inaugural report was the need for lenders to judge cases on their individual merits.

Brokers from across the country reported frustration with the ‘computer says no’ approach employed by some, who rely on somewhat rudimentary automated assessments based on a credit score. They were emphatic in urging lenders in this sector to be more flexible, adaptable and to recognise that no two adverse cases are the same.

As one broker put it: “A £30 default because someone forgot to send a BT box back or didn't get a final bill when moving home shouldn't be treated the same as a £3,000 default on an unsecured loan.”

There is clearly room for improvement here. If lenders are able to get a better sense of the individual borrower and their previous issues, rather than take a black and white approach, then borrowers will have more options open to them. 

Automation and individuality

While relying entirely on automated credit scoring assessments is far from ideal - and causing consternation among brokers - it does not mean automation itself doesn’t have a role. 

In fact, brokers said they wanted to see technology applied more thoughtfully, so that it can deliver the same certainty and speed which many Prime borrowers enjoy. If lenders get their systems and processes right, then there’s no reason why the borrowing experience should be any different for Prime or Near Prime borrowers in the future.

After all, those with imperfect credit scores can be more anxious when it comes to borrowing. They know they have made mistakes in the past, and are wary about the impact those mistakes will have on their mortgage hopes. Brokers told us one of the biggest concerns these borrowers have about even applying for a mortgage is the risk of rejection.

If lenders can not only focus on judging each case on its individual merits, but also ensure applicants get an answer quickly, then we can combat some of that anxiety.

Near Prime isn’t going anywhere

Perhaps the big message from brokers is that Near Prime is only going to take on a more central role in the years ahead. The industry as a whole needs to not only better understand what is driving that trend, but also how we can support them with their homebuying dreams.

Given so many aspiring homeowners fall outside of pure Prime criteria, if we are to have a healthy housing market, then improving the way we support those with an imperfect record is not just desirable but an outright necessity. 

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