The economic challenges faced by the UK are leading to a significant growth in the adverse market. The cost-of-living crisis has come hot on the heels of the pandemic, putting household finances under ever greater strain.
In the most recent Specialist Lending Study published by Pepper Money, we found that around 7.91 million adults in the UK could be classed as having adverse credit, a sharp jump of 1.6 million from the last wave of this research back in 2021.
That equates to around 15% of the population who have had some issue with their finances, perhaps a missed payment, dropping into unsecured arrears, or having a CCJ registered against them.
Addressing misconceptions
When it comes to the adverse market, brokers play a crucial role in addressing some of the misconceptions that can hold customers back.
For example, our study found that while there is a strong understanding of what a CCJ is, there is confusion around the impact that having one will have on the ability to apply for a mortgage. Almost a quarter of those we spoke to believed they would need to wait for more than five years after receiving a CCJ before they could apply for a mortgage.
With more pain likely ahead, there is a real opportunity for brokers here to challenge those misconceptions. While a CCJ will mean that some traditional lenders are unwilling to consider a case, the specialist market is exceptionally competitive now. Customers are assessed in a hands-on, details-based way taking into consideration the individual’s circumstance rather than algorithm formula.
On the positive side, we found a growing awareness that having adverse credit does not automatically create an impediment to getting a mortgage. In some cases, this is down to their own experiences too; more than two in five (42%) of those with adverse credit who have purchased a home said that the situation did not impact their ability to get a mortgage. In comparison only 10% said they were declined for a mortgage the first time they applied.
Brokers have performed an excellent job in raising awareness of the options open to adverse customers by breaking down those concerns that having those black marks in your credit history will put an end to your home ownership dreams.
It’s a perfect illustration of why there is more to the job of brokers than simply picking out a competitive mortgage rate; for customers with specialist circumstances, no matter what they might be, brokers are educators.
Intermediaries are perfectly placed to address those misconceptions and misunderstandings, to help customers recognise that even in the most specialist of situations they will likely have some options open to them.
Brokers must be proactive
While plenty of would-be borrowers are aware of the role brokers can play in helping them find the right property finance for their needs, this knowledge is far from universal.
Our study found that only a quarter of those with adverse credit who are hoping to buy a property in the next 12 months plan to speak to a broker when securing their mortgage. That’s a dramatic fall from the 54% registered the last time we carried out this survey back in the winter of 2021, and is not far ahead of the 22% who will go straight to their bank, while 12% plan to utilise the advice of their family instead.
It’s undoubtedly true that these sorts of customers will be better off if they make use of the expertise offered by a mortgage broker, not only because of the guidance on offer but the access to specialist products which the borrowers simply could not obtain when borrowing directly.
As a result, it’s crucial for brokers to be proactive in highlighting their services to those who might not immediately look for independent advice when searching for a mortgage. These customers need brokers, but they may not even be aware of it – it’s up to brokers to reach out and establish that relationship.
Equally, those of us who work within the intermediary market, we need to step up and highlight the benefits of going through brokers rather than attempting to secure a mortgage alone. By doing so, we can deliver the best possible experience to customers, irrespective of their circumstances.
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 here.
