According to the Bank of England’s (BoE) Credit Conditions Survey – 2019 Q3, default rates on credit cards and loans on unsecured lending increased in the third quarter of the year with lenders saying they expected this to continue to rise in Q4.
A survey from Pepper Money also released this month predicted 1.26 million people with adverse credit would take out mortgages in the next 12 months, suggesting a sizeable market for advisers to tap into in the near future.
If reports and predictions are to be believed, brokers may find themselves having to prepare for an influx of borrowers with poor credit history – if they haven’t already.
Reacting to the idea that borrowers’ financial situations may worsen, Chris Hall, mortgage consultant at 1st Call 4 Mortgages, says: “I don’t think we’re in too much austerity at the moment but that doesn’t mean people aren’t finding it hard. People still lose their jobs on a daily basis.”
Adding that he found it hard to comment without knowing more, Hall says he’d like to see why lenders felt more borrowers would default on loans in the year’s final quarter and questioned whether that was based on the uncertainty surrounding Brexit or the economy as a whole.
Dilpreet Bhagrath, customer experience manager at Trussle echoes that statement, adding: “I think it’ll be very difficult to predict whether more borrowers will default this quarter.”
No detectable influx
When it came to whether brokers had started to see an increase in borrowers struggling financially or expected to as per lender’s predictions, it appears to have not been the case with those Mortgage Solutions spoke to.
Lilla Dilliway, mortgage broker at Bluewing Financials says she hasn’t seen a rise in major issues among her clients.
“There are the odd problems but not necessarily due to recent events. I don’t think my colleagues and I have seen anything specifically increasing in this area,” she adds.
Trussle’s Bhagrath agrees that her firm has also not noticed a particular increase in clients with adverse credit, however she says: “We do have a healthy number of customers under this category who sign up every month.”
It appears this is a common sense that for those already active in the sector there are certainly plenty of customers to serve.
Hall explains: “Most of my business is specialist; I’m doing quite a lot of this and there’s plenty of this business out there.”
Difficult to face
Although the brokers have not seen a marked uptick in clients with adverse credit, they acknowledge that it could be an area where borrowers would struggle to be upfront, resulting in them not being open with their adviser and maybe even defaulting on loans.
“In the past there has been associated shame with any adverse credit,” Bhagrath says before adding that clients “should be completely honest with their broker” when they were struggling, so they could be advised on their options.
Noting that there is more education on debt management as well as a culture of being aware of and bettering their credit score, Hall says despite this shift, “humans are humans and when things get tough, they tend to bury their heads in the sand”.