There can be no question that the last few years have put the finances of individual households under enormous pressure. We had the pandemic, where millions of people were forced to get by on reduced pay packets while on furlough, or even laid off should their employer be in particular difficulty.
This has then been followed by the cost of living crisis, a time when we have all seen the pound in our pocket struggle to keep up with the rocketing costs of everything from energy bills and food to broadband and council tax. It has not just been the fact that things are becoming more expensive, but the rate at which they have grown in cost – food prices for example have jumped by 19.2% over the last year, the highest level of food price inflation seen since the 1970s.
Given this situation, it is little wonder that some would-be borrowers have developed the odd blip on their record. When times have been particularly tough, they may not have simply turned to further credit – instead they may have missed a payment or two, whether on a credit card, mobile phone bill or even their mortgage.
Responsibility and flexibility
This is a clear and present issue for plenty of households – a recent study by Which? found that around two million households missed some sort of payment in April.
However, there are those for whom those payment problems are a thing of the past. Yes, they may have had trouble making their payments a year or so ago, but they are now on a surer financial footing.
The problem comes from how those historical payment hiccups are handled by mortgage lenders should a prospective borrower apply for funding from them.
Obviously lenders should always be responsible in how they assess applications, and ensure that any mortgage is affordable not only today but in the future too, should circumstances change.
Yet we know from our conversations with brokers that all too often lenders are particularly intransigent when it comes to historical payment issues. The mere existence of a credit blip is enough to rule a client out, even if those issues have been overcome.
Taking the time and effort
Rigid decision-making seems to be particularly true of lenders who lean on an automated approach when it comes to assessing borrowers. Yet things can be different with lenders who embrace a manual underwriting system, as we do at Mansfield Building Society.
Rather than viewing such issues as a reason not to lend, we can take the time to get a better understanding of the borrower’s circumstances, and make a more informed decision on their application.
It’s because of this approach that, for example, we can consider both satisfied and unsatisfied debt management plans on our Versatility and Versatility Plus ranges. Similarly more recent defaults on credit cards, loans, and mobile phone bills, among others, can be considered.
This manual approach means our underwriters can get an accurate impression of the client’s current circumstances and ability to repay a mortgage, rather than dismiss them out of hand.
Delivering for a wider range of clients
The reality is that a far greater number of would-be borrowers are now what might be termed as those with ‘specialist’ needs. While lenders may have been comfortable focusing their efforts on ‘vanilla’ borrowers historically, that is becoming an ever more limited attitude.
There is no shortage of borrowers who now fall within the realms of being specialist, who want to raise funds for a property purchase or refinance, and who are perfectly good borrowing prospects. Supporting them is the right thing to do for the health of the market, yet it’s only possible if lenders take a manual and open-minded approach.
Tom Denman-Molloy is intermediary sales manager at Mansfield Building Society