In the latest instalment of The Interview, The I speaks to Sara Palmer, head of distribution at The Mortgage Lender about opportunities for brokers in the adverse space and how the firm takes a real-life approach to understanding customers’ needs.
With the cost of living crisis in full swing are you starting to see an increase in borrowers with adverse credit?
The cost of living is certainly starting to have an impact. While we can’t say for sure that we are seeing the full effects, we are starting to see a trend.
Since we improved our residential criteria to help customers that had missed unsecured credit payments, we have seen an increase in our application volumes which would point to more people falling outside of the high street’s remit.
However, it’s too soon to see the full impact of rising costs, particularly as inflation is predicted to rise even further this year.
How big of an opportunity is there for brokers in the adverse space?
The past few years have been particularly hard financially for many people and brokers are well placed to support anyone with a blip on their credit score on how to get mortgage ready and find the right lender.
Recently we produced a report exploring adverse credit, this showed that 12% of the UK population may be deemed to have ‘adverse credit’ by a lender. That works out to around 6 million adults that would benefit from a broker’s help and expertise.
More broadly, 6% of people in the UK missed a payment over the last two years, that’s almost 3.2 million adults in total. The research also shows that one in 10 aspiring first time buyers currently use a buy now pay later scheme such as Klarna, with 18% of those who use these schemes missing a payment in the last few years.
The rise in BNPL schemes could see more people being classed as adverse credit without realising which might soon see more needing support from brokers and specialist lenders going forward.
Do you think brokers are aware of all the options available to adverse borrowers?
Brokers are being asked to evolve. Some brokers are already in the specialist space, but with more adverse credit applicants increasingly all brokers will need to have some understanding of the options available for these customers.
No two cases are the same and it is important that brokers establish relationships with specialist lenders and utilise all the resources available to them such as criteria search systems, specialist packagers and distributors.
The key is to keep an open mind and know that there is almost always a solution for a customer, even if that solution is to wait for a few more years. Brokers can provide valuable guidance to help customers, who aren’t quite ready, become mortgage-ready in the intervening time
Is the market properly catered for by lenders?
The market is well-provisioned for those who have had previous credit issues. There are plenty of lenders and product choice to cover all aspects of credit impairment whilst ensuring responsible lending.
It is important for brokers to understand that a lender is looking for a customer’s ability to pay, to this extent context beyond finances is helpful as usually we see a life event has affect their credit profile. This could be a loss of income, relationship breakdown or illness rather than issues that are still ongoing that could affect their ability to repay the mortgage.
Are current credit scoring systems outdated? Could more be done to understand a borrower’s credit profile? (payments like rent that are not recorded etc)
Credit systems are advanced and a range of credit analytics and advanced logarithms to identify, validate and support your mortgage application. As a lender, the technology for managing credit scoring systems has come a long way in recent years.
The next step would be Open Banking, where credit scoring and live transactional history will ultimately reduce the need for paperwork and delays in decisioning. No payslips, no statements, less paperwork and faster turnaround times can be expected soon.
Credit score providers also have significant tools at their disposal which typically reflect your credit profile when you need a funder to look beyond your credit score. For instance, TML only applies a credit score for our RL0 product range.
An automated credit search approach can only go so far to help a customer with credit impairment, this is where a real-life lending approach, with full underwriting on every case really comes into its own.
This means we can assess other areas of the customers financial activity, such as demonstrating their rental payment history or bank statement conduct to support our lending decision.
How does TML cater for these borrowers?
As a company we take a pragmatic, real life approach to lending, where every case will have an underwriter assigned. At the beginning of the process there is an automated decision using technology to help drive efficiency.
What this does is identify what documents will be required to assess the case, assuring brokers that they then have the support of a dedicated underwriter who they have direct access to as the case progresses to offer.
What advice would you give to brokers wanting to help adverse clients?
My advice would be for brokers to make sure they understand the full picture of their customer’s situation and needs, including income, property type, deposit etc not just the adverse credit element.
This might be as simple as obtaining more information up front making the process easier for underwriters to understand the full scenario and how they can help.
At TML any broker registered will have a BDM and Telephone BDM team available to discuss any new cases which we would advise before submission. This means they can run through all aspects of the customer’s application and see how best we can help.
