Why Christmas credit mishaps shouldn’t block homeownership – Harrison

The festive season is obviously a cause of great excitement, but equally one of trepidation for many, given it’s one of the most expensive periods of the year. From gifts and travel to food and heating, December spending can easily spiral.

The reality is that many hopeful borrowers are still counting the cost – and perhaps the mistakes – of previous Christmases. Last year, research from StepChange Debt Charity found that around one in 12 people were relying on credit to cover their festive spending. That’s about four million people needing to borrow in order to get through Christmas. Given the way we’ve seen the cost of seemingly everything increase in recent years, it’s unlikely this was a one-off – there will have been millions who in the preceding years have similarly turned to plastic, payday loans and overdrafts.

The issue is not so much the debt itself, but the potential knock-on effect. For some borrowers, the challenges of recent years will have meant missing the odd repayment on that Christmas debt, or perhaps putting off paying a phone bill or parking fine.

While these may have been temporary issues, they leave a permanent mark on credit files. Those small blips, often caused by seasonal overspending, can have an outsized impact on someone’s future borrowing ability, particularly when it comes to securing a prime mortgage from a high street lender.

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The need for near prime

This is where the near prime sector plays such a vital role. Borrowers with minor historical issues are often perfectly able to service a mortgage today, yet find themselves excluded because of a ‘computer says no’ approach that overemphasises potentially small past mistakes.

At Atom Bank, we’ve seen the demand first-hand. In fact, we have repeatedly broken our own records for near prime applications this year. Obviously, part of this increased activity has been because of the improvements we have made to our range, but this isn’t about tooting our own horn – that growth also reflects the simple fact that more borrowers need these sorts of mortgages from mainstream lenders like us. Brokers are encountering more clients who no longer fall within the bounds of a prime mortgage, but who deserve a chance to get on – or move up – the property ladder.

Listening to brokers

Christmas debt is nothing new. Each year, there will be households that overspend in December and then face a difficult January. But one festive mistake should not spell disaster for years of mortgage prospects.

For lenders, the challenge – and the opportunity – lies in adapting. It’s not enough to simply enter the near prime space. Instead, we need to respond to the actual difficulties borrowers are facing, designing products and criteria that genuinely line up with their circumstances.

That’s where brokers play such an invaluable role. They see the day-to-day struggles and aspirations of clients, and they know where rigid criteria or outdated policies risk shutting people out.

The changes we have made to our near prime proposition over the last 18 months have been driven by those conversations with brokers, putting their insight to good use. They understood how limiting a small cap on unsettled defaults could be, or how quality borrowers were being overlooked by near prime lending that didn’t stretch to 90%. We took that feedback on board and acted.

I am sure brokers are telling other lenders the same things they are telling us. The only difference is how lenders react to that information, whether they use it to improve or pay lip service to evolving what they do.

Learning lessons

The mortgage market cannot afford to ignore this segment of borrowers. The financial shocks of recent years have created a larger group of near prime borrowers than ever before. Despite temporary credit issues, many of them are excellent candidates for mortgage finance, and their inclusion is essential if we want a housing ladder that functions properly.

As Christmas approaches, millions will once again lean on credit to fund the festivities. Some will fall behind on payments. But if those issues are short-term, lenders should not punish them for years afterwards. The near prime market exists to give such borrowers a second chance, and it’s time more lenders embraced that responsibility.

A temporary Christmas credit hangover should not be the reason a family misses out on a home of their own.