Adrian Moloney (pictured) is sales director at OneSavings Bank
It’s no longer unusual to have a slight blemish on your credit rating and increasing numbers of individuals will and do have an impaired credit rating.
For example, when you look at county court judgements (CCJs) against consumers, the volume of cases reached more than one million in 2018 alone.
Yet, whilst this is becoming more common, it still poses a problem for those individuals when it comes to applying for a mortgage. This part of the market is largely underserved by lenders.
One of the key issues is that the term ‘impaired credit’ encompasses a whole spectrum.
For example, CCJs can encompass anything from a borrower with an unpaid parking fine of £100 to someone defaulting on a £10,000 credit agreement.
Even if an individual with an otherwise impeccable history accidentally missed a credit card payment this will have an impact on their credit score and could reduce their chance of securing a mortgage.
For example, we recently dealt with a first time buyer case, who was seeking a loan of just over £160,000 at 75% LTV for the purchase of a residential property in the South West.
However, due to a life event, the applicant had had previous credit issues. These issues had since been resolved but the applicant had still found some difficulty in being approved for a mortgage.
The umbrella of impaired credit also includes individuals that have declared insolvency within the last six years.
This means that if you had declared bankruptcy half a decade ago, it would still affect your credit when applying for a mortgage today. And that’s even if you have a secure and stable income now.
On the other end of the scale, many consumers haven’t built up any credit history whatsoever.
Experian estimates that the number of people who are ‘financially invisible’ and therefore will struggle to secure credit, could be as high as 5.8 million.
So, what can brokers do to help clients with impaired credit?
As many brokers will be aware, the majority of non-specialist lenders have historically struggled to service this market.
This is because they often lack the ability to underwrite manually, assessing case-specific circumstances and context to fully understand the borrower’s creditworthiness.
Whilst the market is starting to adapt, there is some way to go before the market caters for the growing number of borrowers that have a less than perfect credit record but are relatively low risk and creditworthy.
Brokers with clients that have impaired credit must then consider other avenues to help their client access a mortgage.
Those with good relationships with specialist lenders will be well placed to help advise their clients on this.
With the first time buyer case I mentioned earlier in this article, the broker provided testimony to show that the applicant’s credit issues had been resolved through a credit report and via payslips confirming the applicant’s salary.
The underwriter could then through conversations with the broker and a full explanation into the applicant’s current financial and personal situation agree to provide funding on this basis.
Specialist lenders who are able to consider cases on a bespoke basis are better equipped to deal with clients with an impaired credit history.
They can review cases on an individual basis and will offer brokers clear information on the criteria they’ll consider prior to application.
This means brokers will know the right lenders to approach from the offset and be able to offer their clients a smoother application process.
For the clients, being able to access a mortgage from the right lender means they will be one step closer to repairing their credit for the future.