That affordability is becoming an ever more difficult issue for brokers is not just a regular feature of our conversations with advisers, it’s borne out by industry research too – a recent study by Mortgage Broker Tools found that a whopping 94 per cent of brokers believe affordability has become more complex in the last 12 months.
That’s up from the 86 per cent registered the year before, a useful demonstration that while affordability has been a challenge for some time, it is getting worse.
Overcoming that challenge takes time too. The same study found that around 89 per cent of brokers are now having to work harder than a year ago in order to help their clients secure the loan they need, whether they are looking to buy or refinance an existing property.
Navigating the payment potholes
A factor in the affordability issue is the growing number of would-be borrowers with adverse credit.
Recent years have thrown no shortage of challenges at normal households – indeed, those challenges continue today with inflation remaining stubbornly high.
Perhaps inevitably, a notable number of borrowers have missed a payment or two. Figures from the Financial Conduct Authority (FCA) last year suggested that around 4.2 million people had missed three or more payments in the first six months of 2022.
Those are the ones for whom problems with payments are most pronounced though; there are other households who have had more modest issues, but who still have home ownership aspirations and their more patchy history can make it difficult to pass rigid affordability tests.
Borrowers should not be punished for getting help
One area that has come up frequently with brokers recently has been around debt management plans. As the name suggests, these plans offer borrowers a way to clear their debts in a more affordable, manageable way – the borrower can essentially consolidate their various unsecured debts, and establish a household budget so that it’s clear what they can afford to repay each month in order to pay off what they owe.
These plans have been a popular vehicle for borrowers looking for a little helping hand during the trials and tribulations of recent years, but we know that some lenders look at them somewhat cautiously. The idea seems to be that if a borrower has needed to make use of one in the past, when circumstances have changed, then they are no longer a suitable option for a mortgage.
That isn’t always the case though, at Mansfield, we recognise that making use of a debt management plan where necessary is actually a sign that the borrower has been proactive in tackling the issue.
Doing more to support borrowers
Debt management plans are just one example of the potential issues that may arise in an application from a credit adverse borrower. There will be some who have defaulted on the odd credit card, loan or even household bill.
It would be very easy to take a black and white approach to the subject, to view the existence of any missed or late payment as a dealbreaker.
But to do so would mean an awful lot of perfectly good borrowers are denied the funding they need for their property plans and are essentially excluded from the market for no good reason. If a lender implements a proper underwriting team and puts their faith in that team to dig into the details of each individual case, then the lender can get a more informed, comprehensive view of what’s really important and what is little more than noise.
If we want to have a healthy housing market, then we need to find ways to support borrowers even if they have had the odd historical issue.
Brokers have long memories and will understandably gravitate toward the lenders who are more open-minded and versatile, rather than those who stick to rigid – and unfair – decision-making.
