Borrowers are looking for alternative lending
This article was written in partnership with Pepper Money.
Desmond Devoy, of Mortgage Introducer, hears from Pepper Money’s Rob Barnard about how tightening rules and growing adverse credit are leading borrowers to seek out alternative lending.
Specialist lending has often been associated with adverse credit, but now it’s much more than that. Just ask Rob Barnard (pictured), intermediary relationship director at specialist lender Pepper Money.
“I talk about specialist lenders picking up the baton when the high street just doesn’t like the look of the case,” Barnard told Mortgage Introducer.
There are only three certainties in 2024, he joked: death, taxes… and credit score fails. One reason high street lenders may reject an applicant is because they have failed a credit score.
But one of the selling points for Pepper Money is that it doesn’t rely on credit scores to make lending decisions. Instead, it takes a common sense approach to decision making, with a more ‘human’ touch to its underwriting and using information only supplied by a borrower.
Who uses a specialist lender?
Pepper’s customers range from first time homebuyers to home movers, those looking to remortgage and those who want to borrow additional funds secured against their existing property. Typically, they all start their journey by having a chat with an intermediary.
Some of them may have seen their ability to borrow hampered by something as simple as an unpaid parking ticket. Moreover, these may become a County Court Judgement (CCJ). It’s what Barnard considers a ‘blip’ – and these can also occur from a late credit card or utility payment. “That’s the sort of stuff that is going to make people start to fail credit scores from the high street,” he explained.
In the third quarter of 2023 there were around 225,000 CCJs in England and Wales – with an estimated million over the course of a year. These can impact a company or individual’s ability to borrow for up to three years – meaning there are millions of people who will likely not be going anywhere near a high street lender anytime soon.
But Pepper’s aim is to help these customers get back on their feet. “We give a lot of flexibility to those little blips,” assured Barnard. “We’ll help the brokers turn those blips into DIPs.”
How many people in the UK are experiencing adverse credit?
Pepper’s latest, annual Specialist Lending Study, compiled in partnership with YouGov, canvased more than 6,000 people of different ages and demographics. It suggests just over 15 million people in the UK have a history of adverse credit.
In the current cost-of-living crisis, as many as one in five households are estimated to be behind with paying household bills. Pepper’s study found that as many as 80% of self-employed applicants were finding it harder to get a mortgage just because of their work status. Meanwhile, about 11% of respondents said they were having to take up a second job just to make ends meet.
As many as 43% of respondents said that they had some element of adverse credit – while their unsecured debt had increased in the past 12 months. Some 45% of respondents were also increasing use of buy-now-pay-later schemes, all of which can lead to a negative impact on credit scores.
Approaching seven million of those who have experienced adverse credit, have suffered financial difficulties in the last three years. Pepper’s study found that 13% of them were planning to look for a mortgage in 2024. The chances are, they will bypass high street lenders and investigate an alternative funding source – and that’s where specialist lenders like Pepper come in.
It will take 100% of two sources of income, compared to some high street lenders who will only look at a portion of a second income. On joint applications, a high street lender may also be hesitant to consider an application where one borrower is employed, but the other is on some type of benefit.
Again, Pepper will consider allowing some forms of benefit when assessing affordability. It has also adjusted its criteria to only look at the latest year’s figures or first year’s trading figures for businesses. This is especially pertinent after the pandemic, when a significant number of people have changed jobs.
What are the UK’s political parties saying about housing?
In the lead-up to Britain’s much anticipated general election, many will be focussing on what each political party is offering in terms of housing policy, particularly following the end of the Help to Buy scheme, which was well received by first-time buyers.
“Help-to-buy was a big part of the UK market,” Barnard said, emphasising the big hole the scheme has left behind. “It’ll be interesting to see if any variations of Help to Buy might come out in the manifestos.”
Pepper is keen to address affordable housing - lending in the shared ownership space, for example, and helping people buy their council houses, with special attention to that human touch, of which the lender is proud. “At Pepper, we give direct access to underwriters,” Barnard said. “People that actually make a decision.”
Some brokers may never have worked with a specialist lender, of course. But, with so many potential borrowers who have experienced credit blips wanting to seek a mortgage, that could be set to change.
“Now might be the time to do it,” Barnard urged intermediaries. “Don’t be afraid to use a specialist lender like Pepper. We can help you write more business because that’s what we’re all about.”
