Prior to the Covid-19 lockdown we were already living in an increasingly complex financial world, with the notion of what is a ‘traditional job/income’ shifting.
A rise in zero-hour contracts, the gig economy, multiple income sources, more people self-employed, were all having to be factored into an understanding of credit risk, affordability and suitability. From a mortgage point of view, regulation had already shifted us away from the traditional notion of what your borrowing could be and how that would be worked out, and just exactly what was permissible especially as new generations spend larger amounts of their income on housing costs.
And then Covid-19 hit, and the complexity of the average UK worker’s income went to another level because now we have a situation where millions of people are having all, or part, of their monthly salaries paid for by the government, and there is a great deal of uncertainty about what happens when, at the end of this month, that begins to taper down.
Many of the thousands upon thousands of workers currently on furlough may well be told that their jobs no longer exist; it’s already happening with each day seemingly bringing the news from another large retailer, or other business, that it will need to make redundancies in order to continue as a going concern.
Depending on how the economy is able to recover, this could be a temporary blip or a longer-term trend. We sincerely hope it is the former, but even if it is, there will still be many people who are staring down the barrel of deep uncertainty, although we all hope the government action will be enough to support and help them through this period until they are on more firmer employment ground.
It’s not a positive message to promote but it is the reality of the situation and, within that reality, advisers are still needing to lead mortgage clients through the process and attempt to outline just how different their understanding of the market might currently be.
For many borrowers now looking to remortgage or possibly purchase to move, for many potential first-time buyers who believe they have enough deposit, for many older borrowers who are weighing up their options close to, or in, retirement, the landscape they might believe to exist, in all likelihood, does not.
The way lenders review the incomes of borrowers, especially coming out of lockdown, may be very different to how they did it just six months ago. Why wouldn’t it? Covid-19 has been an absolute game-changer and, even with good intentions such as mortgage payment holidays supposedly not showing on credit reports, we know that hasn’t necessarily translated into what providers of credit have been telling agencies.
Find an adviser on social media and you’ll probably hear a tale of clients’ credit records showing missed payments when they’d agree them with the finance company, or details of how lenders are (again understandably) combing through bank statements/Open Banking data, in order to be fully up to date on how the client has managed through lockdown.
This will not change in the near future – if anything this level of scrutiny will go up because lenders will have much to lose if they are not responsible in their lending and if they take on a credit risk which they should have seen at the point it was underwritten.
Advisers will/are being placed in tricky situations because there are clients who have little idea what state their finances are in, what difference any change to their circumstances through lockdown will mean, and exactly what has happened to their employment during the period. That doesn’t mean they don’t want a remortgage or need advice, but it does mean the requirement for advisers to get full transparency on that client’s credit report/rating/banking details is paramount.
Otherwise, how can you spell out the options or the difficulties that may be present? How would you know which lender route to move down? How might you present a realistic appraisal of what is achievable and what may not be? Bear in mind that a recent survey of lenders by the Bank of England said that both secured and unsecured credit availability was likely to decrease over this quarter and probably beyond.
Advisers utilising products like our own Credit Assess can get all that detail upfront and start from a position of strength, even if the client may not themselves be in the strongest financial position of their lives. This is all about pre-empting what might happen based on the facts of the matter now – not waiting for some potentially nasty surprise much further into the process which could damage all concerned.
David Jones is director of Click2Check