The growing need to support those experiencing financial bumps in the road

Although the once in a generation pandemic of 2020 appears to be slowly fading to become something of a distant memory for most of us, the financial legacy combined with the ensuing ‘Cost of Living Crisis’ is being felt across a wide spectrum of mortgage borrowers.

It’s well documented that first time buyers continue to face an epic struggle to keep up with rising house prices and the knock-on impact that has on the level of deposit required, but a growing number of borrowers are facing a different kind of affordability challenge.

The unprecedented financial strain of the forementioned events has pushed more and more people to the brink with their finances, leaving many in a position where they were unable to make repayments on their various credit or mortgage arrangements. Despite most experiencing what should be considered just a small ‘blip’ on their credit file, it’s having a monumental impact on their ability to borrow.

How big is the problem?

In a 2024 study* it was reported that 8.38 million people in the UK had experienced some kind of adverse credit in the last three years, with 1.76 million of those wanting to purchase a property within the next twelve months. It’s a growing issue with numbers rising year on year.

The impact on consumers is profound, with reports that nearly 38% of borrowers** with adverse credit being rejected at the point of mortgage application. At Melton Building Society in 2024 enquiries on behalf of applicants with adverse credit accounted for 17% of enquiries into our Sales Desk. Of those enquiries 44% were for clients who were currently participating in a Debt Management Plan (DMP) or an Individual Voluntary Arrangement (IVA), followed by those with payment defaults which made up 23%.

What is the impact on Brokers?

At Melton Building Society the feedback we’ve had from our brokers is that the growing number of clients requiring suitable products for a chequered credit history have pushed them to educate themselves further on the implications of adverse credit and the propositions available on the market. With diminishing numbers of ‘vanilla cases’ and credit blips becoming increasingly the norm, the time for innovative propositions and education on criteria is now. Broadening the type of applicant they can assist will not only widen the opportunity of business for Brokers but improve customer experience and increase the confidence of buyers that there are suitable lenders and products available to service their needs.

What’s the solution?

Flexible underwriting and specialist products are the key to unlocking the secret to better supporting borrowers. Products such as those in Melton Building Society’s Credit Repair range go beyond traditional products by offering a scale of products dependent on the borrowers’ credit history.  It is one of few propositions in the market that considers the more severe cases including bankruptcy, repossession, existing IVA/DMP and up to 3 missed mortgage payments in the last 12 months (1 in the last 3 months) up to 70% LTV. Brokers need to recognise that the financial bumps in the road are quickly becoming the norm for today’s borrower and that to keep the mortgage market moving we must endeavour to support those that may have experienced a little financial hiccup, often through no fault of their own, to regain control of their finances with the stability that comes with home ownership. 

In a recent case study Melton Building Society were able to support a first-time buyer, who’s business was an unfortunate casualty of the pandemic. Having fallen into financial difficulty as a result, they built up over £10,000 of credit card defaults and filed for bankruptcy, which they were discharged from in 2022. With help from the ‘Bank of Mum & Dad’ providing the 30% deposit needed, and the Society able to lend the amount needed  they were able to make that all important first step onto the housing ladder.

Sources:

*https://www.pepper.money/file/Specialist-Lending-Study-2024.pdf

** https://bluestonemortgages.co.uk/wp-content/uploads/2024/08/Adverse-Credit-and-the-Mortgage-Application-Journey.pdf?utm_source=Research+Report&utm_medium=website-blog&utm_campaign=chapter-three

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