Solving the layered complexity conundrum

The following article is supplied by Foundation Home Loans.

There has been precious little financial respite for much of the UK population in recent months. Especially for those homeowners who have come, or are coming, to the end of their fixed rate terms and also for those looking to take their first step onto the property ladder.

I say this following the news that inflation remained higher than predicted in May with core inflation - which includes all commodities and services other than food and fuel - increasing to 7.1%, its highest level since 1992.

Factors which have undoubtedly weighed heavily in the Bank of England's Monetary Policy Committee decision to increase Bank Rate by 0.5% to 5%, its 13th consecutive rise.

This is a combination which will hurt the UK economy, place a further squeeze on living standards and result in a further layer of complexity being added across the residential mortgage market as a rising number of people are failing to keep up with their bills.

In May, the Financial Conduct Authority (FCA) sent out a timely and prudent message to remind borrowers how important it was to seek help from their lender if they were unable to meet repayments. This came after it found that the number of people struggling to meet bills and credit repayments had risen by 3.1 million since May 2022 (10.9 million, compared to 7.8 million in May 2022). This also showed that the number of adults who missed bills or loan payments in at least three of the last six months had rocketed by 1.4 million, up from 4.2 million to 5.6 million over the same period. 

Further data from StepChange Debt Charity outlined that mortgage holders are more likely to be showing signs of financial difficulty than the wider UK population in some instances. According to the charity, 45% of mortgage holders, equivalent to 6.9 million UK adults, have found it difficult to keep up with bills and credit commitments over the past few months.

The figures highlighted that two fifths of mortgage holders (40%) are showing at least one sign of financial difficulty, while one in ten (10%) mortgage holders are estimated to be in problem debt. It added that mortgage holders (20%) are more likely to have made just the minimum repayments on their debts compared to the wider UK population (16%). Mortgage holders (15%) are also more likely to have used credit, loans or overdrafts to make it through to payday compared to other UK adults (10%).

These represent some sobering statistics and ones that we, as an industry and as a lending community, certainly can’t afford to ignore. In addition, we also can’t discount how life events continue to impact this layered complexity conundrum. By this I mean redundancy, injury, health concerns or relationship issues which may have led to a variety of borrowers experiencing some level of debt or the odd missed payment. Be this recently or historically.

Thankfully, opportunities do remain available for such borrowers through a specialist residential mortgage market which remains open for business. This is sector which will remain key in delivering a range of solutions for borrowers who may have missed a payment, have multiple income streams, be reliant on bonus and/or commission payments, be self-employed with one year’s income, have benefited from a gifted deposit, or for professionals requiring a higher income multiple but who may have had more recent credit events.

There are an ever-growing number of scenarios which may have been considered ‘unusual’ in the past but, as our intermediary partners are fully aware, many of these should no longer be considered ‘unusual’ in the present. And with the economy and mortgage market combining to create increasingly layered complexity across the whole residential sector, there will be an even greater reliance on the specialist lending community to deliver competitive and responsible solutions to meet these increasingly common borrowing needs going forward.

Grant Hendry (pictured), is director of sales at Foundation Home Loans