There has been an increase in incidental issues
The term adverse credit covers a wide range of situations and scenarios, from a missed payment on a credit card, to defaults, CCJ’s, and everything in between.
Since the COVID days of mortgage payment holidays, Mike Brown (pictured left), managing director of Crystal Clear Financial Services, said it feels as though there has been an increase in incidental issues on clients’ credit reports, which is making it more difficult to place mortgage business with lenders.
“There are, of course, many lenders out there for many different client situations, but it would be useful to see a differentiation in credit issues that is then scored accordingly,” Brown said.
Differentiation on credit issues
“If someone does not pay their water or utilities bill, I question whether that should constitute the same credit score or failing as someone that has unsuccessfully maintained a credit agreement on a personal loan, or credit card facility,” Brown said.
Brown said it could well be that the client has changed their bank, or their direct debit got cancelled by mistake, which can often happen.
“It would be good to see a differentiation from lenders and credit scoring systems where various types of ‘credit’ assessment tools are used for credit scoring for mortgage purposes,” he said.
If someone has a blip on their profile and then corrects it promptly, Brown said surely that is a good thing and shows due diligence on the part of the client. If it is not corrected for more than one month, he said there is something possibly underlying that needs further investigation.
“However, for the majority of situations, if it is corrected within one month, then why should that not be accepted by lenders,” questioned Brown.
Challenging outlook
Dominik Lipnicki (pictured right), director of Your Mortgage Decisions, said the outlook for borrowers with adverse credit is looking more challenging.
During times of high inflation and the cost-of-living crisis, Lipnicki said more and more people will find their financial situation taking a turn for the worse, which, for some, will mean missed payments, IVAs or CCJs.
“Hence for many, prime mortgages will no longer be available but obtaining finance with an adverse credit history has become harder,” he said.
Lipnicki said many lenders have tightened up their affordability calculators to reflect inflation and even, if as forecast, inflation subsides over the coming months, he believes, for some borrowers, the figures will still not stack up.
“We have seen prime mortgage clients suffering, and in the adverse market this has been even more acute,” Lipnicki said.
He has also seen some lenders double counting debts to consolidate, hence not only are they included in the loan, but lenders are still taking them into account when carrying out affordability calculations. Lipnicki said adverse clients are more likely to have other debts, and this can be a real challenge.
“It can be very important that the advisers have access to a broad range of lenders and a good tenacious adviser will work hard to find a solution for their client,” Lipnicki said.
Do you believe differentiation on credit issues is important amid the current economic climate? Let us know in the comment section below.
