FOREWARNED IS FOREARMED.
By Adrian Moloney, Group Intermediary Director, Precise Mortgages
We need to be ready for a leap in the number of borrowers with less-than-perfect credit records, through no fault of theirs
I have a confession — I’m not the best at household budgeting. I couldn’t tell you how much a pint of milk costs, and it’s some years since I’ve really noticed how much I’ve paid for a round of drinks (Wembley on Cup Final day being a notable exception).
But in recent months I’ve made a conscious effort to use my car less and have started having serious conversations with the family about how to keep our heating bills down this winter.
Because, as we all know, the cost of energy is genuinely terrifying, and still increasing.
I have no doubt that similar conversations are being had up and down the country. The cost-of-living crisis is impacting almost every person in the UK, with inflation already at a 40-year high of 10.1% in August and set to rise.
Economists at global bank Citi warn that inflation could hit 15% in the first quarter of 2023. This may (or may not) be a worst-case scenario, but household finances will definitely be squeezed harder and harder for the rest of this year and into next.
Borrowing needs
This pressure on personal finances will impact consumers’ borrowing needs and in the mortgage arena we need to be prepared for how that will play out.
Thanks in part to the pandemic, hundreds of thousands of people missed credit payments or unsecured loan repayments last year. In 2021, 848,124 county court judgments (CCJs) were registered against consumers in England and Wales, up 36% from 625,901 in 2020, according to Registry Trust. The figure for the first six months of 2022 stood at 459,819.
These numbers can be expected only to increase dramatically in the next 12 months as households struggle to cope.
On the mortgage front, thousands of borrowers are coming to the end of five-year fixed-rate periods this year, with no interest rate stress performed at underwriting (in line with Financial Conduct Authority guidelines). They will experience payment shock in an environment where interest rates will keep rising for the foreseeable future as the Bank of England tries to combat that red-hot inflation.
Indeed, a whole generation accustomed to sub-1% interest rates is already panicking.
In May, UK Finance was already forecasting a 26% increase in mortgage arrears for 2022 compared to last year, and the picture has darkened since then.
So, as an industry we need to be ready for a leap in the number of borrowers with less-than-perfect credit records, who find themselves in the ‘adverse’ category due to circumstances completely beyond their control.
Reliable system
Brokers will play an essential role for more and more borrowers, who will need their expertise and advice to find the best solutions. So those who have not engaged much in the ‘adverse’ market may want to start familiarising themselves with this growing sector sooner rather than later.
As lenders, we need to provide a comprehensive range of mortgage solutions to suit a wide variety of borrowers with damaged credit records, whether they have recent CCJs, defaults, arrears or debt management plans. And we need to offer these deals via a reliable system that does not require multiple applications, which could further compromise those credit records.
There are tough times ahead for everyone but forewarned is forearmed. As an industry, we need to be prepared — and ready to work together to help our customers through this crisis.
How Precise Mortgages could help
As one of the UK’s leading specialist lenders, Precise Mortgages don’t believe that a credit blip should prevent a customer from getting a residential mortgage.
Our criteria is designed to help those with less-than-perfect credit profiles who may have been turned away by high street lenders.
To find out more about how we could help, chat with a member of our sales team or call our dedicated support service on 0800 116 4385.
