One of the hot topics in the financial services world right now is non-conforming lending. Is this sector growing? Will there be a fallout similar to that experienced in the US? Is the use of cascading actually ‘Treating Customers Fairly’? In the midst of all these complex queries, we seem to have missed one fundamental basic question – what do consumers know about this sector?
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After all, they are the end users and if they aren’t aware of the market or what it can do for them, it is going to be rather difficult for it to develop. With this simple question in mind, Beacon Homeloans surveyed a selection of ordinary people to explore basic consumer understanding.
Questioning the public
The first question was very simple – have you heard of the non-conforming market – and revealed some shocking results. Only 19 per cent of consumers had heard of this market. Surely, in a society were 30 per cent of people admitted to experiencing some credit difficulties, the level of knowledge could not be this poor?
Thankfully, this was not the case. While many consumers were ignorant as to what this sector actually covered, they were clearer as to who could benefit from it. 42 per cent of respondents identified ‘people with credit problems’ as the primary users, while 21 per cent felt the market targeted ‘the self-employed’. However, a worrying 20 per cent considered it to be a market for ‘people who need to borrow above their income multiples’, 10 per cent thought it was for divorcees’ and 8 per cent for the unemployed.
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Just 42 per cent of respondents correctly identified a ‘non-conforming’ mortgage as one that could be taken out by people who had credit difficulties in the past. 40 per cent of respondents believed this type of financing combined different interest rates, 11 per cent thought it was any mortgage you got from an institution other than a high street bank, and 8 per cent said it allowed you to borrow more than five times your salary.
Level of ignorance
Possibly due to the extensive interest this type of product received after the BBC Watchdog programme in 2004, 69 per cent consumers correctly identified what a self-cert mortgage is. However, there was also a level of ignorance with 13 per cent believing this is when your employer certifies your income, 10 per cent stating it is a type of financing which allows irregular payments and 9 per cent saying it takes into account previous payment history.
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However, the report did reveal some good news, with 44 per cent of consumers saying that if they had credit problems and needed a mortgage they would firstly speak to an independent financial adviser. 22 per cent of the remaining respondents would visit their bank, 21 per cent would visit their building society, and 12 per cent a specialist lender.
The research also showed that there was a gender bias towards knowledge in the non-conforming market. Although more women – 20 per cent, than men – 16 per cent, claimed to have heard of the non-conforming market, they were more shakey on the actual product details. More men than women understood what a non-conforming mortgage was – women: 39 per cent vs men: 49 per cent – and a self-cert mortgage – women: 66 per cent vs men: 76 per cent. This is slightly concerning as more women – 32 per cent – than men – 25 per cent – said they had missed credit card payments, been made unemployed/redundant or bankrupt – making them likely candidates for the non-conforming market.
Communication
But what does this data actually mean for this sector? Well, it should influence the way in which we communicate with consumers. The research shows that there is a serious lack of understanding. This is unsurprising as the non-conforming market isn’t straightforward. It encompasses a wide variety of product types often comprising of a number of varying tiers dependent on adverse credit levels.
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We need to tackle this lack of knowledge and ensure that we reach these potentially vulnerable consumers with the message that ‘home ownership is not simply for the credit elite’.
But do we really need to do this, I hear you ask. After all, if a person has credit difficulties surely they will visit their adviser, who will inform them about the market and the options available to them. In an ideal world, this might be the case but it is obvious from our research that there are still a significant number of individuals who might not consider visiting an adviser – probably due to the fact they do not understand the benefits of doing so. Indeed a significant proportion of potential borrowers may wrongly assume that because they have impaired credit there is no hope of them finding a provider who will be willing to lend to them, and therefore no point in visiting a financial adviser.
So what conclusion does this research leave us with? Well, we need more financial education for all UK consumers and we need to talk to more ordinary people about this sector. Will this happen?
Well, it will be interesting to see, as the non-conforming market grows over the next few years, if consumers’ awareness will increase or if we will still be trying to shine a light into a sea of consumer unawareness.
