Education is the key to delivering for near prime borrowers – Harrison

We recently published our inaugural Near Prime Index, a biannual look into the state of the market and how brokers are feeling about the prospects for their clients with some sort of adverse credit history.

And one of the biggest themes to come through from the research was just how central education is, with brokers often taking on the role of teacher for their clients.

Creating issues

The first challenge comes from borrower behaviour. Brokers told us there are misconceptions around the issues that can lead to them falling outside of prime status when the time comes to take out a mortgage.

The way that borrowers interact with credit has changed in recent years. Buy now, pay later (BNPL) services have become far more common – shop online and chances are you’ll be offered the option of using something like Klarna or PayPal ‘Pay in 3’, allowing you to pay for your purchase in stages.

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That flexibility can be invaluable, but it also opens up greater opportunities for missed repayments. Brokers cautioned that the non-prime clients they are working with have often fallen foul of these schemes, missing a payment or two, perhaps when they have faced some other unexpected bill. Skipping the payment can seem relatively harmless to them, as they are unaware just how long the black mark will remain on their record or the impact it can have on their eventual mortgage options.

Brokers, therefore, often have to act as educators, making sure their clients understand what lenders are looking for from applicants, and why they currently fall outside of prime status.

Understanding options are available

Another educational avenue lies in reassuring borrowers who do have an imperfect credit record. There is a subset of borrowers who are aware that they have black marks on their credit history and assume there will be few, if any, affordable options available from the start.

These misconceptions can be the result of conversations with friends and family, rather than industry professionals. Brokers said they often have to clear up those misunderstandings, explaining that there are options available even for clients with some adverse credit history, and that with the right lender, pricing can make these products fully accessible

A payment mishap or two can have a long-lasting impact on someone’s credit file, but that doesn’t mean it has to end their homeownership hopes or leave them stuck with high interest rates. When it comes to near prime, brokers can be the bearers of good news, rather than bad.

Back on the right path

The final element of education that comes through from our Near Prime Index is that near prime is not a permanent status. Just as brokers have a crucial role to play in showcasing that there are still options open to those with an imperfect record, so too do they need to demonstrate the path back to prime status, and what is required from their clients.

This is a collaborative effort, and it’s one that lenders can – and frankly, should – share in. If lenders are serious about supporting borrowers in regaining prime status, they need to remove unnecessary barriers, like late payment fees.

Prime status can be closer than it seems at first for these borrowers. We have seen borrowers return to meeting prime criteria within an average of two years, and automatically offer such borrowers a prime renewal rate once their Atom Bank Near Prime rate reaches maturity.

Over the last 12 months, the vast majority of our near prime clients have qualified for a prime rate, showing how accessible prime status – and the lower rates on offer – can be, if you work with the right lender.

Near prime is no longer a niche area of the market. The economic difficulties of recent years mean brokers are seeing a greater number of clients with some element of adverse credit, but who remain outstanding borrowing candidates. However, these clients often require education not only on how they have ended up in this position, but also on the options open to them, and how to regain prime status.

If we can get that education right and work together, we can make the process of returning to prime that much easier.