What is adverse in 2017?
The mortgage industry has always prided itself on how it evolves quickly to meet the changing needs of the market, and 2017 is no different. As the lifestyles, living situations and working habits of the population shift, lenders are having to adapt, become increasingly flexible and cater to the demands of the growing number of borrowers rejected by high street banks.
As a result of demographic changes over the last few years, a raft of challenger lenders has emerged to target these sections of society that have otherwise been neglected. Many of these new brands are specialist lenders – they know their target market, understand the needs of their customers and provide a suite of innovative products that serve an often-disregarded sector. These lenders will accept a certain level of adverse credit history and offer product combinations that customers cannot get on the high street. These include solutions for landlords who want to let their children reside in a student let property or borrowers who have been turned away from other lenders because of past credit issues.
The term ‘adverse’ used to be synonymous with the credit crunch and irresponsible lending to high-risk borrowers. Thankfully, this is no longer the case. Specialist lenders can go where traditional high street lenders cannot. The archaic automated credit scoring systems used by most mainstream banks do not distinguish which borrowers may well represent a ‘good risk’, effectively locking legitimate customers out of homeownership. Specialist lenders do their research and won’t reject perfectly good borrowers who have a slight blip on their credit histories or complex income streams.
Following the credit crunch many lenders became extremely risk adverse, however the blueprint for a ‘perfect borrower’ has become increasingly unrealistic in today’s society. Specialist lenders recognise this. With specialist lending comes specialist underwriting and the need to understand the real reasons behind why a customer might have adverse credit. It could have been a life event, for example divorce, illness or death, where a customer finds themselves in financial hardship through no fault of their own. Specialist lenders will use their expertise and a human touch to explore whether the borrower has good credit behaviour patterns before and after the event, and not just dismiss them immediately. Technology helps to support ‘adverse’ lending as it empowers humans to make the right lending decisions, avoiding a ‘computer says no’ decision. The right system can provide lenders with the technological advancement to safeguard their proposition while enabling customers to access the right mortgage product for their situation.
Intermediaries also hold the key to this industry, ensuring borrowers are educated about the array of lenders and products available to suit their specific circumstance. Lenders have a role to play here, too, however. It is important that they communicate their propositions and product updates clearly and frequently with brokers to ensure they are informed and are able to suggest the most appropriate deals to their clients. As we continue through 2017, and the mortgage market continues to modernise, we hope to see more of these customers with blips on their credit records at last get access to the suitable lending solutions they deserve.
Louisa Sedgwick, Director of Sales, Mortgages