Families placed in a financial squeeze over the last 18 months have been forced to make tough choices between paying the mortgage or rent over other household bills.
The result, say brokers, is a rising number of households falling outside mainstream mortgage criteria forced to reassess their borrowing options.
Impact Specialist Finance has recorded a 28 per cent rise in adverse credit mortgage enquiries in the last six months compared to the same period last year.
Online mortgage broker Mojo said it had also received an increase in applications from applicants with credit issues.
Between June 2019 and June 2020 the broker saw the proportion of mortgage applicants it could not place with mainstream lenders rise from 16 per cent to 28 per cent, with its proportion of high street-worthy clients falling from 84 per cent to 72 per cent. This split remained the same between June 2020 and June 2021.
Meanwhile, Habito has recorded a slight increase in clients with a poor credit history between quarter one and two this year. The broker said the proportion of applicants answering yes to either incurring CCJs, being made bankrupt or repossessed in the last six years, or those who have taken out a payday loan, defaulted on a mortgage payment or made a late mortgage payment in the last two years rose from around 4.5 per cent to 6.5 per cent.
Dale Jannels, managing director of Impact Specialist Finance, said: “We’re receiving a lot of enquiries from clients who want to move home or buy for the first time but have incurred some sort of adverse credit and want to know how much they can borrow in six to 12 months time.
“There are lots of reasons people have struggled during the pandemic. The loss of a job may mean they have had to prioritise paying the mortgage or rent over other bills.
“It’s good that people are planning ahead to find out now what their borrowing options are.”
Jannels says it is often small bills such as a parking fine or a catalogue bill that get overlooked or not taken seriously but wind up as a default marring a borrower’s credit history.
Director of mortgages at Mojo, Cassie Stephenson, said it was not just the impact of furlough or unemployment that led to an increase in families being shunned by the high street banks.
Lenders’ reaction to the pandemic has been to tighten criteria so that only those with high levels of equity and income are guaranteed to get a mortgage.
“Credit risk committees play an integral role in how lender criteria is managed and it’s clear these groups have had to tighten rules significantly to minimise the amount of ‘bad debt’ on their books over the past few months,” she said.
“This is also the reason why initiatives such as the newly-introduced government backed mortgages [for high loan to value deals] and products specifically designed for those with impaired credit are so important to supporting first-time buyers.”
Metro Bank launched its near prime mortgage range in February and is currently the only high street lender openly offering loans to those with a less-than-perfect credit history.
Supporting the bank’s decision to launch the range were findings from accountancy firm PWC that suggested there could be up to 14 million people in the UK with a less than perfect credit history.
In partnership with YouGov, the bank conducted a survey that revealed more than eight in ten people with adverse credit history thought banks and other lenders weren’t interested in helping people like them.
The survey also showed that more than four in ten of the respondents have been prevented from getting a mortgage or remortgage as a result of their credit history.
Charles Morley, director of mortgage distribution at Metro Bank, said: “It’s easy to feel let down or cast adrift when you’re a borrower with historic credit issues. However, there are still options out there for those looking to get on the housing ladder, remortgage their property or move home.
“So if you have a CCJ or missed payments against your name it’s worth assessing your options in the market – there are opportunities out there to get a mortgage that’s right for many customers.”