So, your client has set their sights on a new home, but a less-than-stellar credit score is dimming their mortgage dreams.
The key step in your client gaining back control of their credit report is to know what lenders are looking for and the best course of action would be to obtain copies of this.
Lenders’ cautious approach to adverse credit is deep rooted based on the higher risk factors of defaulted mortgage repayments. Unless you are dealing with a niche or specialist lender, the big six have much more stricter requirements to obtain finance, such as higher interest rates, larger down payments, or requiring additional documentation to assess the borrower’s financial stability.
With current trends showing higher levels of scrutiny surrounding these types of applications, both the client’s ability to service these commitments and their creditworthiness will be assessed in greater detail. And, with Consumer Duty in full flow, advisers are expected to prevent clients from experiencing foreseeable harm.
Lenders want to help adverse credit clients
Banks are also doing their part in helping these types of adverse credit clients navigate a mortgage market that at times demonises them with innovative products.
The lender LiveMore, for example, has issued the following changes to its product offerings making it more accessible to meet lending criteria:
- An increase from three to four missed payments on unsecured arrears.
- A rise in the value of permissible satisfied county court judgements (CCJs) and defaults from £1,500 to £2,500.
- The allowance of a debt management plan (DMP) if satisfactorily maintained and over three years prior to application.
These changes apply across LiveMore’s standard capital and interest, standard interest-only and retirement interest-only (RIO) products.
On applications with adverse credit, we are seeing a much higher requirement for supporting documentation, from the normal bank statements and payslips, to credit card and personal loan statements, along with budget planners outlining payment structures and commitment timelines.
Lenders such as Saffron Building Society have implemented applications of this nature to be assessed by three different underwriters for an application to progress to the offer stage, encasing the strained process of getting adverse applications in 2024 over the line.
Building credit takes time but the positive impact of your client’s efforts will gradually improve their score. However, remind them that they must be prepared to wait 12 to 24 months for any significant improvements.
This is why it’s imperative for mortgage applicants to seek out and consult a mortgage broker for personalised guidance that can help create a budget, analyse the market for lending criteria and strategise a financial plan.
