Post-MMR there has been little talk about flexibility from either a lender or borrower’s point of view. Instead there has been an incredible amount of focus on the rigidity of the new lending environment with borrowers having to deal with affordability measures and criteria which seem structured to the nth degree. To my mind, all the attention placed upon the difficulties borrowers could encounter may well have put many off even attempting to secure finance. This is probably not the mindset the powers that be wanted to engender when they introduced the new rules.
And the real truth of the matter is while certain lenders do operate a very rigid interpretation of the lending rules, not all do, and not all need to. Lending responsibly and providing a bespoke, flexible offering are not mutually exclusive – however given the width and breadth of their operations, particularly for the major high-street banks and lenders, operating anything but unmoving and unflinching affordability measures and strict criteria is simply not possible. You could imply this is beyond the ‘computer says no’ response; it is more like ‘computer says no, means no, and isn’t willing to look at your individual circumstances in any way, shape or form’.
If this was the environment that all borrowers encountered then we would have the most vanilla of mortgage markets, however we are fortunate in that this is not the case for all lenders. Indeed, whereas some treat the credit score as an opportunity to say ‘No’ 99 times out of 100, others are looking and actively using the score to deliver something above and beyond their structured product range.
This can certainly be the case for some active players in the buy-to-let market where competition is full on and lenders are looking at their product range with a more flexible view. Yet, the first point to accept for advisers and their clients is that this approach to lending should be far more about rewarding those borrowers who have exceptional credit scores, rather than shipping higher-risk products out to those who come with any degree of adverse credit baggage.
As stated above, flexibility has to be married to, rather than, divorced from responsibility. So, this more tailored, nuanced approach should be used for borrowers who represent less of a risk to the lender, not more. The credit score of the borrower is crucial in this regard and can be the starting point for a product offering which can move beyond a static product range. This is all about lenders using the credit score to offer more ‘bespoke’ products that reflect how much of a good risk prospect the potential borrower is; it’s about ‘rewarding’ that borrower by, for example, a cheaper rate or enhanced criteria.
Compared to the high-street bank/lenders approach this is chalk and cheese because, from a lender, it needs individual underwriting and it needs a commitment to use the credit score in a positive manner. This method of lending takes the decision on a considerable step forward allowing the lender to deliver a message which says, ‘You fit and you’re much better than the average so we can offer you a better deal’. From an adviser’s point of view how positive would it be to work with lenders who could offer this within minutes, and be able to deliver that news back to a client?
So, in this environment, advisers and clients can encounter a different lender offering – one based on rewarding quality, rather than pitching everything at the lowest common denominator. There are certainly lenders out in the marketplace using this approach and advisers should certainly think about engaging with those who are able to offer much more to those that surpass the norm.
Bob Young is chief executive officer of Fleet Mortgages