So in the mortgage market the lender will have a series of credit risk mitigants, sometimes private mortgage insurance, in order to hedge against those loans that might go bad.
They will also work the likelihood of arrears and repossessions into their financial modelling and, of course, not lend too high up the risk curve to those it deems to be a greater risk.
The problem, of course, and this tends to be more acute with first-time buyers who are younger is that, while they will have a credit and financial history, it might not be very well formed.
Who is to say how a 25-year-old’s career might pan out, for instance?
I was reminded of this while reading a recent article where advisers were asking lenders to look at offering more professional mortgages to younger individuals who might have jobs such as doctors, lawyers, accountants and similar that might therefore expect to advance relatively quickly and earn more money.
Of course, that professional definition could and should be even wider in today’s working environment.
Who is to say, for example, that a software engineer or indeed a young entrepreneur shouldn’t be classed in this bracket?
And, indeed, as more people start their own businesses, might we be dealing with an individual who is going to have a hugely successful firm in five, ten or 15 years?
So, lenders clearly have to review the changing jobs market, the roles that people are taking on, the move away from traditional work, and decide how that influences the mortgage options they provide.
Clearly, when it comes to younger potential borrowers at the start of their careers, the likelihood of them having large deposits to put down to buy a home are a lot less.
Even with a parental gifted deposit they are likely to be looking at high loan to value (LTV) options, but with the potential for them to be earning significantly more in the future and with a much greater chance of comfortably paying their monthly mortgage.
And of course we should not forget their attractiveness as a long-term customer for that lender.
Lenders have the tools
Therefore we could marry-up high LTV options with professional borrowers who might require a little more flexibility and help at the start of their mortgage journey?
In years to come these customers could easily fit the bill of a traditional mortgage customer, especially if their career pans out as they might envisage.
In that regard, lenders can of course insure the potential greater risk that comes with such borrowers but knowing that this is likely to be over a shorter timescale and perhaps not at a normal level.
Life will always throw difficulties at borrowers that they could not possibly have foreseen, but lenders have the tools and the products to provide far more mortgage options in this space and help those professionals get on the ladder perhaps far sooner than they might have anticipated.