Getting onto the property ladder has long been a challenge. However, the current economic climate has exacerbated this, making it particularly challenging for those that don’t fit the traditional lending criteria to secure a mortgage.
Traditionally, those with adverse credit have been rejected by high street lenders because their credit profile doesn’t fit the traditional criteria, often finding themselves with nowhere to turn. Our latest research has found that 14% of UK adults have been turned away by a mortgage lender in the past, with this figure increasing to 38% for those with adverse credit.
Although interest rates have finally come back down from their historic 16-year high and lenders have started to cut their rates, the road to recovery is a long one. While this will help ease some of the ongoing affordability pressures that we have seen since 2021, it will take some time before consumer confidence returns to pre-pandemic levels.
Brokers have a key role to play in the current environment, supporting the growing number of adverse credit customers looking for specialised support and direction and championing them on their journey to homeownership.
Consumer confidence
For borrowers, the impact of being rejected is emotional as well as financial and is having a significant impact on people’s confidence in securing a mortgage. Our research revealed that nearly a fifth (18%) of consumers feel they have been discriminated against by lenders due to their credit history. This number sharply rises to more than half (51%) among those with adverse credit history.
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Additionally, more than a quarter (28%) of those with adverse credit are not confident at all that they will be able to secure a mortgage in the future, marking their confidence level as just one out of 10.
For brokers with customers in this situation, it’s important to remind them that there is help at hand and give them the financial resources and emotional support they need to improve their credit history and get their finances back on track.
Giving the right advice
Many of those who have been locked out of the mainstream mortgage market are likely to be unfamiliar with the range of innovative products that exist that could help with their unique circumstances. Our research found that over a quarter (26%) of customers with adverse credit whose mortgage application was declined weren’t offered access to a specialist lender. As such, brokers have a vital role to play in signposting these customers when appropriate to specialist support that could help them achieve their homeownership goals.
Communication will be more important than ever, both from a lender and broker perspective. Lenders must ensure they are keeping brokers up-to-date with their latest offerings, while for brokers, this means taking steps to ensure their customers understand their situation and are equipped with the right knowledge to make informed decisions.
Additionally, now we are a year into Consumer Duty, brokers must make sure they are able to recognise and understand different characteristics of vulnerability and have systems and processes in place to help vulnerable customers.
Looking ahead
With complex and adverse credit customers expected to become the norm, the specialist lending market has the potential to meet the changing needs of borrowers, helping them achieve their homeownership goals.
Brokers must embrace this cohort and be prepared to deal with these complexities to provide these customers with the right support they need to get their finances back on track.
Looking ahead, brokers and specialist lenders must work closely together so that they are providing the best solutions they can for their customers to ensure that everyone, no matter their background, has the chance to make their homeownership ambitions a reality.
