Higher level of unsecured borrowing is dampening hopes for many
Four in 10, or 41%, of consumers have increased their unsecured borrowing over the past year – a trend echoed by the Bank of England’s findings, which show rising demand for credit card lending in the second quarter of 2023.
This year’s Pepper Money Specialist Lending Study found that nearly 30% of respondents have unsecured debts exceeding £5,000, with 10% reporting debts of over £15,000. In addition, 44% of those using Buy Now Pay Later (BNPL) services reported that their debt from such schemes had grown in the past 12 months.
These higher levels of unsecured borrowing are impacting mortgage aspirations, with 42% of consumers expressing concern that their debt may hinder their chances of securing a mortgage.
Ryan Brailsford (pictured left), director of business development at Pepper Money, highlighted the challenges borrowers with unsecured debt face when approaching mainstream lenders.
“There are many factors that could see a mortgage application declined by a high street lender only to be approved by a specialist lender, who have expertise in underwriting more complex cases,” he said.
“Missed payments can see applications turned down, and this year’s Specialist Lending Study found that 8.38 million people have experienced adverse credit in the last three years. Outstanding unsecured debt is another reason why a customer’s circumstances could be considered ‘just-off-high-street’ as many lenders will impose a limit on the debt-to-income ratio (DTIR).”
Wayne Smethurst, Director at All Money Matters, echoed these concerns, noting that rising unsecured debt has worsened affordability issues for prospective homebuyers.
“In recent months, we’ve seen a definite upward trend as so many people have increased their unsecured borrowing during the cost-of-living crisis, and these outstanding debts can significantly reduce the size of mortgages available to them or see them being rejected altogether,” Smethurst noted.
“This is why it’s so important that lenders take a more individual approach to assessing income, without binary limits for DTIR. By working with lenders that make decisions based on a customer’s true ability to maintain payments, we can provide options to help them achieve their goals, even when they have been declined by a high street lender.”
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