The Mortgage Charter has been a welcome initiative. Understandably there are plenty of borrowers who are approaching the end of their historically low fixed rates periods and are apprehensive about what lies ahead for them.
The measures announced by the government were sensible. Borrowers will be able to discuss their options with lenders, without an impact on their credit scores. They will also be able to extend to longer repayment terms switch to temporary interest-only plans back to the terms of their original deal, again without the credit score being affected.
If money is particularly tight then undoubtedly borrowers will want to be able to get a full grasp of the options, and perhaps switch to a setup that provides some further breathing space. However, these conversations are less likely to occur in the first place if the borrower is concerned that there will be a longer-term detriment to their credit score and potentially financial position.
Questions to answer
That said, there remain some important questions around how effective it will truly be.
Certain borrowers could end up slipping through the cracks, mistakenly believing that their credit score will not be impacted by events. While changing the mortgage term or moving to interest-only may not affect the score, if the borrower instead experiences defaults or missed payments as a result of the ongoing difficulties then the reality may be rather different.
Getting the full picture
It’s worth bearing in mind then that not all lenders rely on automated credit scoring anyway. Lenders who embrace a more personal approach, such as ourselves at Mansfield, do things differently.
Building societies have long been recognised as offering greater flexibility – and in my view fairness – than those who have to rely on a credit scoring system.
Rather than systematically and impersonally checking those credit scores, Mansfield Building Society instead take the time to get to know the individual client and case in closer detail. Therefore, if there are issues which may affect a credit score, we understand the reasons behind them.
It’s an approach that has long been valued for borrowers who have more quirky circumstances or at least appear to.
We know that it has often been a source of frustration for brokers when what appears to be a straightforward case instead comes a cropper because of the overly strict way that some lenders appraise applications. Advisers tell us that it can seem at times as if the lender is looking for excuses to turn a borrower away.
The contrast is stark with lenders who put manual underwriting at the heart of their activities.
The truth is that borrowers who have been on the wrong end of the recent difficulties will have fewer options open to them if they go through credit scoring lenders, even with the Mortgage Charter in place, but common sense lenders can and will be more supportive.
Advisers do much more than find the cheapest deals
There is a lot for any broker to take into account when making a recommendation to their clients. The job of an adviser is far more involved than simply pinpointing the cheapest deal on a two-year fixed rate every couple of years.
The way that a lender operates can be just as important as the pricing of the home loan. If there is anything about the borrower that could be viewed as some sort of complexity – such as their employment status or payment history – then the broker will want to work with a lender that will not simply run a mile at the first sign of that complexity.
Instead it’s about finding the lenders who are versatile enough to consider the case on its own merits. We are passionate about versatility at Mansfield Building Society – indeed, it’s the name of our mortgage range and is central to the way we work.
The challenges of the last few years will have a lasting impact on some mortgage borrowers. The proportion of borrowers who fall within the ‘vanilla’ category will inevitably be smaller in the foreseeable future than the industry may previously have been used to.
These ‘non-vanilla’ borrowers will still need mortgage help and initiatives like the Mortgage Charter will only go so far. Instead, mortgage lenders must deliver fairness and flexibility for borrowers and brokers alike.
Tom Denman-Molloy is intermediary sales manager at Mansfield Building Society