We are now at the stage where we can start to look forward and consider what shape the market might take beyond the COVID-19 crisis. The pandemic has impacted many areas of life, particularly people’s finances – and so it is likely that it will play a part in carving out what tomorrow’s mortgage market looks like.
Just prior to the pandemic, in March, Pepper Money worked with YouGov to conduct research amongst a nationally representative sample of more than 4,000 UK adults to gain a better understanding of their credit history and future homebuying aspirations. We found that 15% of respondents, or 7.86m people, had experienced credit problems, including missed payments, CCJs, defaults, unsecured arrears and secured arrears, in the previous three years. And, of these, 17% were thinking about buying a property in the next 12 months – resulting in a potential adverse credit mortgage market of 1.34m.
Many of those plans would have been put on hold, of course, but the latest indications are that homebuyers are keen to resume activity and may actually swell in number following the lockdown. Property website Rightmove recorded its busiest ever day on Wednesday 27th May, surpassing six million visits for the first time and up 18% on the same Wednesday in May last year. This doesn’t appear to be mindless browsing as the number of people phoning and emailing estate agents through Rightmove also increased by 18%, and research indicates that over a quarter of people (28%) who were not planning a move before lockdown are now entering the market.
The long-term financial impact of the pandemic is yet to be known, but whatever shape the economic recovery takes, it is clear that there will be a significant increase in the number of individuals who have more complex borrowing requirements. The consequence of millions of people deferring their mortgage and credit payments, the furloughing of employees across the country, the challenges faced by the self-employed and contract workers and the prospect of increased unemployment, will all put greater emphasis on the importance of hands-on underwriting to assess an individual’s full set of circumstances.
Whether or not payment holidays are registered by the credit reference agencies, lenders will still want to understand if payments have been missed and the circumstances behind those missed payments. There are also likely to be many individuals whose personal circumstances change with regards to employment, and this could result in missed payments on financial commitments.
In short, there are considerable drivers behind the growth of the number of customers with not just adverse credit, but also complex credit. Combined with early signs of a healthy appetite from homebuyers, this could be a significant moment for the specialist mortgage market and for brokers to demonstrate their value.
According to Pepper Money’s research, 70% of homebuyers with adverse credit were concerned that their credit history would result in a failed mortgage application, and with recent headlines about lenders reducing their risk appetite, this number may now be even higher.
However, the good news is that nearly six in ten (57%) homebuyers with adverse credit said they would seek the advice of a broker to find the right mortgage and, as you know, there are plenty of options for borrowers from lenders that are able to take a hands-on approach to underwriting.
So, now is the time to recognise the opportunities to help people achieve their aspirations. As more customers have circumstances that might exclude them from a mainstream lender, we need to work to educate them about the options that are available and the benefits of professional advice.
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