November 2019 | Adverse

Paul Adams: There are 1.26 million reasons to read this article

Paul Adams is sales director at Pepper Money

The mortgage market is awash with high level data about the number of CCJs and defaults that are helping to drive the growth of the adverse credit sector – but what about the people behind these statistics?

At Pepper Money, we have commissioned extensive research to shed light onto the world of adverse credit to help raise awareness of the potential of the market and increase understanding about those people who want to buy a home, but might write off their own chances to do so because of their credit history.

We partnered with YouGov to carry out a survey amongst a total of 4,163 British adults to find out the truth about how many people might be considered to have adverse credit, how many of them are planning to buy a property and how their credit record influences their plans.

According to our research, 15% of all respondents have missed payments on credit commitments; had CCJs, defaults, secured or unsecured arrears registered on their credit file; or entered a debt management plan (DMP) in the past three years.

This means we can estimate the number of people considered to have adverse credit to be 7.86 million, based on a total UK adult population of 52.4 million (ONS data).

Of those 7.86 million people who have experienced a form of adverse credit in the past three years, 16% have the intentions of purchasing a property to live in or let out in the next 12 months.

This equates to an estimation of 1.26 million potential mortgage customers with adverse credit who may need support from a broker in the next 12 months.

Adverse credit is most common amongst people who are the prime age to be homebuyers and remortgagors. The majority of people who have experienced adverse credit in the past three years are aged between 35-44 (45%). This compares to 35% who are aged between 18-34, and 20% who are older than 55.

It’s also not just those who are less affluent who pick up adverse credit on their record. Some 61% of the adults who have experienced adverse credit in the past three years and are planning to buy a property in the next 12 months are associated with a higher income.

In fact, our research shows that regardless of gender, age, or being associated with higher or lower income, anyone can find themselves with adverse credit.

Missed payments are the most common form of adverse credit, with 76% of participants having had missed a payment in the past three years.

Nearly a third (31%) have had defaults, and a quarter (25%) have been in a debt management plan. Just over a fifth of respondents (21%) have received one or more CCJs.

Awareness of mortgage brokers is relatively good, as four in 10 people with adverse credit who are looking to buy a property in the next 12 months say they would speak to a broker.

However, more people (44%) say they would go directly to their bank and even more (58%) would seek advice from family and friends.

But the research suggests that potential borrowers are not even getting to the stage of seeking advice. A quarter (25%) of those who have experienced adverse credit in the past three years believe they have to wait more than five years after being registered with a CCJ before applying for a

mortgage. And overall, a staggering 93% of people don’t know that it is possible to get a mortgage with a CCJ registered as recent as recently as six months ago.

There is also little understanding amongst consumers about the events that can lead to experiencing adverse credit on their record.

Most people believe that they can only get a CCJ if they miss more than one payment, with 93% of respondents unaware that just one missed credit payment could lead to a CCJ.

Two thirds (66%) also don’t know that there is no minimum amount of debt required to be issued with a CCJ.

Our research suggests that there is exceptional potential for brokers to grow their client base amongst people who have recently experienced adverse credit.

But the reality is that many people in this group still don’t know about the options they have available to them or the benefits of talking to a mortgage broker.

So, it’s time that we all take action to help raise understanding and awareness about the adverse credit mortgage market amongst the 1.26 million people who need our help.