Home hunters with poor credit on the rise as pandemic wreaks havoc on family finances
Mortgage companies have reported that a growing number of households that damaged their credit profile during the pandemic are seeking advice on how to get financing to buy a home.
Families facing financial hardship over the past 18 months have been forced to make tough choices between paying the mortgage or paying the rent versus other household bills.
The result, brokers say, is that a growing number of households fail to meet traditional mortgage criteria, forced to re-evaluate their borrowing options.
Impact Specialist Finance has seen a 28 percent increase in adverse mortgage applications over the past six months compared to the same period last year.
Online mortgage broker Mojo said it has also received an increase in applications from applicants with credit problems.
Between June 2019 and June 2020, the broker saw the proportion of mortgage applicants it could not place with traditional lenders increase from 16% to 28%, with its proportion of trustworthy clients rising from 84% to 72 %. This breakdown remained the same between June 2020 and June 2021.
Meanwhile, Habito saw a slight increase in the number of customers with bad credit histories between the first and second quarters of this year. The broker said the proportion of applicants who answered yes to either incurring CCJs, going bankrupt or repossessing in the past six years, or those who took out a payday loan, defaulted on a mortgage payment or made a mortgage payment. late mortgage payment over the past two years has fallen from about 4.5 percent to 6.5 percent.
Dale Jannels, Managing Director of Impact Specialist Finance, said: “We get a lot of inquiries from clients who want to relocate or buy for the first time, but have experienced some kind of bad credit and want to know how much they can borrow. in six to 12 months.
“There are a lot of reasons people struggled during the pandemic. Losing a job can mean they had to prioritize paying the mortgage or rent over other bills.
“It’s good that people are planning ahead to find out now what their borrowing options are. “
Jannels says it’s often small bills like a parking fine or catalog bill that are overlooked or not taken seriously, but end up being a defect marring the company’s credit history. borrower.
Mojo Mortgage Manager Cassie Stephenson said it wasn’t just the impact of time off or unemployment that led to an increase in the number of families being rejected by Main Street banks.
The response of lenders to the pandemic has been to tighten the criteria so that only those with high equity and income are guaranteed to get a mortgage.
“Credit risk committees play a vital role in managing lender criteria and it is clear that these groups have had to tighten the rules considerably to minimize the amount of ‘bad debts’ on their books in recent months,” she declared.
“This is also the reason why initiatives such as the newly introduced government-backed mortgages [for high loan to value deals] and products specially designed for people with compromised credit are so important in supporting first-time buyers. “
Metro Bank launched its line of prime mortgages in February and is currently the only large-scale lender openly offering loans to those with less than perfect credit histories.
The bank’s decision to launch the line was supported by findings from accounting firm PWC which suggested there could be as many as 14 million people in the UK with less than perfect credit histories.
In partnership with YouGov, the bank conducted a survey which found that more than eight in ten people with bad credit histories believed banks and other lenders were not interested in helping people like them.
The survey also showed that more than four in ten respondents were prevented from getting a mortgage or a new mortgage because of their credit history.
Charles Morley, director of mortgage distribution at Metro Bank, said, “It’s easy to feel let down or abandoned when you’re a borrower with historic credit problems. However, there are still options for those looking to move up the housing ladder, remortgage their property, or relocate.
“So if you have a CCJ or missed payments against your name, it’s worth weighing your options in the market – there are opportunities for getting a mortgage that is suitable for many clients.”
Samantha Partington is a freelance commerce and consumer journalist who writes on real estate and personal finance. Previously, she worked for the Daily Mail and Property Week. She is the former associate editor of Mortgage Solutions and editor of Specialist Lending Solutions. Prior to becoming a journalist, Samantha worked as a mortgage broker and most recently for a mortgage, bridge and secured loan lender. Samantha is CeMAP qualified. Follow her on Twitter @ SamJPartington1.