In early June, the Financial Conduct Authority (FCA) suggested that lenders should assess affordability according to a borrower’s existing financial health, rather than excluding individuals based on minor or past credit history issues.
This comes as demand for near prime lending keeps climbing; last month, Atom Bank found that 89% of brokers expected to advise on near prime products.
Brokers say the adverse credit of borrowers must be approached individually – lenders’ criteria should be weighed to genuinely fit the borrower’s circumstances, rather than defaulting to the first one that will accept them.
Self-employed clients have higher arrears hazard
According to the FCA, self-employed borrowers have an estimated 24% higher arrears hazard than employed borrowers, and mortgages with dependent children show a higher estimated arrears hazard.
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Matthew Murray, founder of Rockmere Finance, deals predominantly with self-employed clients. As a broker, when it comes to assessing the risk of clients with adverse credit, he said: “For self-employed clients, I’ll review accounts, business bank statements and assets and liabilities to understand how the business is performing today.
“For limited company directors, I’ll also want to understand whether the business is supporting itself through sustainable profits and cash flow rather than relying on the director continually injecting personal funds.”
Borrowers with adverse credit must demonstrate that they can sustain their finances in the long term and prove a stronger track record than their credit history alone suggests.
He added: “The key question I’m trying to answer is whether the client’s financial position has genuinely improved, or whether they’ve simply managed to keep things together long enough to obtain a mortgage.”
Lenders offer discretion on case-by-case basis
The market is not inflexible for clients with a bad credit history. Advisers serve as the go-between to ensure that the adverse credit is presented fairly and realistically, but with a view to the client’s potential as a borrower.
Rajul Dhokia, director and head of mortgages at Mantra, part of BTG Group, said: “Fortunately, some lenders have bespoke departments that enable discretion outside of their usual policy if we are able to explain one-off blips, meaning our client is not penalised for this.
“We have a duty of care to our client, whether they present themselves as vulnerable or not, and to the lender, to ensure any proposed lending structure doesn’t put a client under undue pressure. Lenders, in turn, tailor their policy and are, of course, risk-averse whilst still offering products to those with severe adverse credit.”
This was seen when Precise supported two borrowers with adverse credit to complete the purchase of their new home at 95% loan to value (LTV). The clients had with historic adverse credit, including several satisfied defaults. While they had no new credit issues had arisen in the preceding 12 months, options at higher LTVs remained limited, despite their credit profile improving.
Specialist lenders showed a consistent pattern in how they price risk. The most severe adverse credit tiers come with a lower LTV ceiling and an approximate rate premium of 0.5-1.5 percentage points. Aldermore accepts defaults registered as recently as six months ago.
Small, low-value defaults are increasingly overlooked. Aldermore ignores combined county court judgments (CCJs) and defaults up to £300 per applicant; Kensington ignores utility defaults up to a combined £250.
Thus, lenders look to prominent signals of bad credit instead – such as recent secured arrears or the size of CCJs.
Rachel Geddes, strategic lender relationship director at Mortgage Advice Bureau (MAB), said: “Where a client’s situation is repairable, some lenders now offer products designed to bridge that gap: the client qualifies today, and by the time they come to refinance, their improved credit history means they can move to a mainstream rate. That’s a meaningful shift: lenders are now proactively offering a route to people who’d previously have been declined outright.”
Lender approvals should be considered
The willingness of a lender does not guarantee suitability for borrowers with adverse credit.
Lenders have been widening product availability, but advisers assert that matches between borrowers and lenders need to be much more bespoke.
Some of the brokers we spoke to said that conversations with clients can involve explaining why the most competitive rate was not the most suitable.
Murray said: “Just because a lender is prepared to lend doesn’t automatically mean it’s the right recommendation. If I don’t believe a product is suitable for the client’s circumstances, I wouldn’t recommend it, even if it could be approved.”
Geddes explained that conversations with borrowers are not just a “one-off tick-box exercise”.
She added: “The real skill is knowing which lender treats which type of adverse credit favourably, and assessing the client’s actual circumstances behind the credit file rather than relying on the score alone. A missed payment from a life event years ago is a very different risk to an ongoing pattern of financial difficulty, and the recommendation should reflect that distinction, not just the headline rate.”
Jonathan Needham, business development director at Cornerstone Finance, summarised: “The conversation has shifted from ‘What’s happened?’ to ‘Why did it happen?’. Good lenders are looking beyond the credit file and trying the understand the person behind it… A missed payment shouldn’t define someone’s future; the paperwork tells us what happened, the conversation tell us why – that’s where good advisers earn their money.”
