According to analysis earlier this year by TUC, household debt rose sharply throughout 2019, with average unsecured debt per household rising to £14,540. This is an increase of £430 on the previous year.
Unsecured debt as a share of household income is now 31%. This is the highest it’s ever been, and above the level it reached in 2008 ahead of the financial crisis when it was 27.5%.
So, it’s not surprising then, that the number of missed payments, defaults and CCJs registered to individuals has also increased in recent years. This means you are more increasingly likely to encounter clients who have experienced financial difficulties.
If you tend to work with clients who have a clean credit track record, then encountering clients with blips on their credit file might seem daunting, but it really doesn’t have to be.
Data from our latest Adverse Credit Study shows this underserved part of the market is going to be counting on you, with 57% of consumers explaining they would seek advice from a mortgage broker.
This is further evidence of this opportunity for brokers, so to help you with submitting your next adverse credit case, we’ve put together 5 simple tips to make that process easier.
01. Know the facts
When you’re working with clients who have experienced credit problems in the past, one of the first things you should do is look at a copy of your client’s credit file. This will give you up to date and accurate information about the type of credit issues on their record, how much they are for and how recently they were registered. These three factors will be important in determining the most suitable product for your client.
02. Know the options
There are lots of options for clients with adverse credit and, as a general rule, a lender will usually want to see that a borrower is back on an even financial footing after any credit difficulties. Typically, a lender might ask that there have been no defaults or CCJs registered to your client in the last six months, and no mortgage or rent arrears in the last 12 months. It’s also worth noting that many lenders, like Pepper Money, can also ignore small defaults and missed payments, particularly on accounts that relate to utilities, communications or mail order providers.
03. Speak to a BDM
It’s always a good idea to speak to a BDM about your client’s circumstances. It’s a BDM’s job to identify whether your case fits their lender’s criteria and they can provide you with solutions to help place the case, as well as hints and tips on how to submit an application.
04. Tell the story
It’s also a good idea to provide a written explanation and summary of the events that led to your client experiencing credit problems. This will often be the result of a life event such as illness, divorce or redundancy and a lender will want to understand that, while your client may have missed payments on their commitments in the past, the new mortgage payments will be affordable. A story always helps underwriters to put an application and information from the credit file into context and there is often a place to add notes as part of an online application.
05. Provide the right documents
When it comes to submitting an application, it’s important to provide all of the documents requested by a lender. Often, lenders that specialise in mortgages for clients with adverse credit, will ask to see recent bank statements from your clients.
This is because lending decisions at specialist lenders are made by underwriters. Underwriters base their decision on the individual circumstances of every client application, and just as a story about credit problems can provide some context, bank statements provide the vital evidence to inform these decisions.
For clients who have experienced recent credit issues, such as defaults or CCJs, the credit report might provide information on the status of their credit, but bank statements will help underwriters to understand the client’s current financial position and whether the mortgage will be affordable and sustainable.
It’s this ability to look beyond the binary information of a credit report and interpret a client’s financial behaviour that gives specialist lenders the confidence to make positive lending decisions to people who may have adverse credit registered to their name as little as six months prior to making an application.
Some brokers can wrongly assume that it can take a long time for specialist lenders to make decisions on cases, particularly those where the client has adverse credit.
But if bank statements and other required documents are supplied promptly, the process of underwriters reviewing those documents doesn’t necessarily have to result in a delay and cases can often quickly proceed from application to offer.
How Pepper Money help your clients
We accept that life has twists and turns, which is why we’re continuing to redefine lending norms, looking for a reason to offer help to your clients, rather than refuse it.
Through our more human approach to underwriting, we read between the lines and see the story behind the numbers.
Pepper Money have a simple and inclusive range of mortgage products to help people in all kinds of situations and look at each case on its own merits, often saying ‘yes’ when others have said ‘no’.