The Intermediary Mortgage Lenders Association (IMLA) has found that a significant majority of mortgage lenders will lend to applicants with non-standard financial circumstances, despite consumers worrying that only borrowers with straightforward incomes and perfect credit histories can access mortgage lending.
IMLA’s ‘Underserved Borrower’ research explored the activities of mortgage lenders in the wake of the coronavirus crisis to uncover their views on applicants with non-standard financial circumstances, such as the self-employed and those who may have several sources of income. The results have found that there continues to be significant appetite from lenders to support borrowers with complex mortgage needs and that seeking professional advice is key to accessing the most suitable mortgages.
When the Association spoke with lenders about their plans to cater for these individuals, 88% said they would accept applications from self-employed borrowers, 71% confirmed they would consider borrowers with irregular incomes, another 63% would accept people looking for multiple borrower products, and 46% will engage with applicants who have credit impairments.
IMLA’s findings also suggest that in order to better cater for these individuals, lenders have adapted their product ranges and criteria expectations to account for the impact which the pandemic has had on the finances of existing and prospective borrowers. For example, they recognise that the past 18 months have been wholly untypical, making it more difficult for self-employed borrowers to provide evidence of earnings. As a result, 16% of lenders have reduced the period for which self-employed borrowers need to show earnings.
Previously, these borrowers would typically have been asked to show between two and three years’ accounts but now some 21% of lenders will disregard the 2020/21 tax year for applicants and accept pre-covid accounts. 25% will accept predicted revenues for these applicants.
21% of lenders have amended their criteria to support borrowers who have relied on furlough income, or those who have accessed a payment deferral. 29% have also amended their criteria to allow borrowers to declare bonus, overtime, or commission income. This was curtailed during the pandemic in an effort to protect applicants who may have seen their earnings significantly disrupted, however an improving economic outlook has allowed many to restore earnings to pre-crisis levels.
Since the start of the pandemic, 87% of mortgage lenders have responded to the increase in applications from applicants with complex financial circumstances by changing their mortgage options and criteria requirements.
67% of lenders have increased the size of their underwriting teams so that they can manually process applications, while another 42% have expanded their wider team. In addition, 46% have invested in technology aimed at improving the way they process customer applications.
Kate Davies, executive director of IMLA, said: “2020 was the year everything was turned upside down – including the mortgage sector. Lenders and intermediaries responded very well given the difficult circumstances and were able, in a remarkably short timescale, to continue to offer support and services to customers. This included millions who accessed payment holidays. This meant that, for a brief period, the range of mortgages offered needed to be reduced, but lenders are back in business with a full and very competitive range of products back on the market.
“Lenders are also very aware that, as we emerge from the worst of the crisis, borrowers who may previously have had non-standard financial circumstances may now have even more complex profiles. Lenders have responded to this – and there are now around 5,000 mortgage products on the market. The best way of securing the right deal is to explore the full range of options – by seeking advice from an experienced mortgage adviser, who can provide access to a wide range of lenders, whether those are familiar high-street names, or specialist providers of whom borrowers may not be aware.
“All mortgage lenders are regulated in the same way and must comply with high standards of conduct and governance – which means that borrowers can deal with them with complete confidence. Some borrowers may find that their circumstances do not make them eligible for the cheapest loans on the market, but that does not mean that they can’t access an affordable deal which suits their circumstances and will enable them to achieve their ambition of home ownership.”
