The cost-of-living crisis has impacted all of us. From energy bills to fuel to food – where prices are rising at their fastest rate since the last 1970s – household finances across the country are increasingly under more strain.
Recent research conducted by Pepper Money, in association with YouGov, has laid bare just how deeply the situation is impacting UK adults, and also highlighted the potential opportunities it may hold for proactive mortgage brokers.
Our Specialist Lending Study found that 71% of UK adults are worried about their financial situation, specifically because of the cost-of-living crisis, while more than three quarters (76%) believe a £100 increase to their monthly bills would significantly impact their financial health.
What’s more, a massive 81% fear that the current economic situation will make it tougher for Hopeful Homeowners to get onto the housing ladder in attempt to escape rent rises.
Yet, while adverse credit is on the rise – perhaps unsurprisingly after the difficulties of the last few years – there is no shortage of misconceptions around what this could mean for a borrower’s options.
Addressing those misconceptions is going to be an important task for brokers and lenders alike.
The growth of adverse
Since the last time we carried out this research, back in the winter of 2021, there has been a stark increase in the number of people with adverse credit.
Back then we found that there were around 6.29 million adverse people, but today that has jumped to 7.91 million.
Moreover, they are becoming ever more reliant on credit – around a third of those with adverse credit have increased their level of unsecured debt in the past 12 months.
Of course, just because a person’s credit status has changed, that doesn’t mean their need to access mortgage finance has also shifted.
There will be plenty of would-be purchasers who can see the opportunity to get onto, or even move up, the housing ladder should house prices drop as expected throughout 2023.
Equally, this is likely to be a big year for the remortgage market, with UK Finance data suggesting that as many as 1.8 million fixed rate mortgages are due to end this year.
These customers are keen to get their mortgage finance in place, and yet around a third of those with adverse credit believe their outstanding debt will make it more difficult to secure a mortgage. Helping such customers understand the range of options open to them, even if they do have adverse credit or a greater level of outstanding debt than was previously the case, is where mortgage brokers can provide a valued service.
The role of the broker
Mortgage brokers have always played a crucial role in the property market. There’s a good reason that borrowers of all kinds, from experienced investors to those taking their first step onto the housing ladder, rely on the expert advice provided by intermediaries.
That role is only becoming more vital as a result of the ongoing economic challenges, and the impact they are having on would-be borrowers.
First and foremost, brokers are well placed to address some of those misconceptions that borrowers, particularly those with adverse credit, may have around their mortgage prospects. The truth is that while mainstream lenders may be unwilling to take them on, the specialist sector is in a healthy position, with lenders like Pepper Money well placed and keen to support those who are underserved by the high street names.
It’s also crucial for brokers to take note of the significant portion of borrowers who would benefit from that expert advice, but are unaware or even unwilling to ask for it. Our research found that just one in four (24%) people with adverse credit who are looking to buy a property in the next 12 months would speak to a broker about a mortgage, compared with 54% back in the winter of 2021.
These are perhaps the subset of borrowers who most need that helping hand and guidance, yet may be turning to their bank (22%), friends (9%) or family (12%) for assistance instead.
Brokers have a real opportunity here, to connect with an active group of borrowers who are on the hunt for a mortgage but are currently unlikely to make use of an adviser. It’s important for brokers to investigate ways to reach these potential customers, to open up that channel of communication, rather than simply rely on their existing customer bank.
Ultimately, borrowers are better off if they use a broker, but it is up to us as an industry to help educate them on the benefits of independent, expert advice.
You can find out more information on how the current economic environment is impacting the attitudes and behaviour of the nation’s households by reading the latest Pepper Money Specialist Lending Study. This study is our most extensive primary research to date and takes a broader, detailed look at the views and impacts of mortgage customers, covering the cost-of-living crisis, adverse credit, self-employed and first-time buyers.
Download your copy of the study now at: https://www.pepper.money/intermediary/specialist-lending-study/
Paul Adams is sales director at Pepper Money
