Even in – what looks like – an economy where inflation is heading downwards, the overall pressure on household incomes shows no signs of abating just yet.
Within the mortgage market, we’re all acutely aware of what an inflationary environment is doing to mortgage rates, and while many existing borrowers will be protected from this because of their existing fixed-rate mortgage deals, when they do come to remortgage they are likely to be looking at increased monthly mortgage payments because of the rates currently available.
That in itself is cause for concern for many, but it’s also entirely possible that many existing borrowers will have also seen their financial circumstances change over the course of the past few years, and they might have picked up some adverse credit or credit blips over that period, which may well shift their ability to secure a high-street mortgage.
Anecdotal evidence from advisers suggests they have started to see an increase in the number of clients coming to them who have picked up ‘credit blips’ in recentyears.
Indeed, statistics from Which? last month suggested that 2.4 million households had missed or defaulted on an ‘essential payment’ such as a housing, a bill, loan or credit card payment in the month up to the 13th July this year.
Now, by the time, these individuals come to remortgage or indeed look for finance to purchase, these blips and credit problems in general might be firmly in the past, however for borrowers who have these on the credit records over the past six or 12, or even more historical than this, they will need to be taken into account, and they may well determine from which lenders they can secure their mortgage from.
For advisers this can be a difficult conversation to have, particularly with borrowers who have been with high-street lenders for all their mortgage ‘lives’ but are now finding that, not only are they unable to secure these deals, but they are remortgaging in a much higher-rate environment.
That might be seen as something of a ‘double whammy’ and might exacerbate the situation, particularly if they have been struggling with the cost of living and inflation being so high.
On this very point, the notion of inflation is often misunderstood. One national paper headlined recently – and I paraphrase – that because the latest inflation figures had shown a fall, now was the time for businesses to drop prices on their goods and services. Talk about missing the point.
If this is the information that some people are getting about inflation, and what it truly represents, then no wonder there is a misunderstanding. Falling inflation does not mean falling prices, it just of course means prices are rising still, but by less than they did last month. Doesn’t seem rocket science but it is still deeply misunderstood, even by news sources that a great many people rely on.
Which of course is why advice in our space is so important, and why it is also vital we have a strong specialist residential mortgage marketplace for those borrowers who may have credit blips or historical ‘marks’ on their credit records.
It’s also why we recently introduced a Tier 4 to our product range, which covers borrowers who haven’t had any significant adverse credit in the last six months, complementing Tier 3 for those who haven’t experienced credit problems in the last 12 months.
As a specialist lender, it’s important we acknowledge that credit changes/difficulties/missed payments, etc, exist at a moment in time, and for many borrowers while very important, they can be fleeting, and recovered from relatively quickly.
While there will be an impact, this shouldn’t exclude existing or wannabe borrowers from remortgaging or purchasing, and the ability to access the mortgages we offer, is often a very important step back along the credit-repair road and moving back to a point where the high-street is a viable option once again.
Of course, to reiterate, mortgage advice is crucial here because there will be a cohort of individuals who understand what, for example, a missed payment means for their credit record, but don’t fully grasp the options they still have. Only with advice can they find lenders like ourselves and, this can often be the difference between feeling they have to sell up or moving onto a more expensive SVR.
Overall, therefore, I think we might expect – given the past few years – that the number of borrowers who have experienced a credit issue or blip will continue to grow.
Importantly, there are mortgage options on the table for them, and advisers who are active in this space, should anticipate a growth in this client type, and a growth in products in order to meet this demand. We at Foundation certainly plan to be active in this space, with a broader offering, for many years to come.
Grant Hendry is director of sales at Foundation Home Loans
https://www.mortgagestrategy.co.uk/features/julyaug-p24-second-feature-borrowed-time/