Mortgage Solutions asked some brokers for their take on the findings and why complex cases are becoming more prevalent, and how the mortgage industry should handle it.
There was unanimity among respondents that the root cause of the rise in complexities was Covid-related, both historically and moving forward, and hit self-employed applicants hardest. While complexity is nothing new, there has been a growing gap in the market for specialist lenders to fill post-pandemic.
They also agreed that the problem wasn’t actually the prospective borrower, but rigid mortgage criteria, as lenders initially retreated from the market while they assessed what Covid was and took stock of how it would affect the market before they felt able to come back in.
Complex cases
Complexity has many different faces in a mortgage world.
Issues that can bar an applicant and render them complex can range from self-inflicted repeated bankruptcy, to something as minor as a single missed payment during Covid, or even taking out a reasonable precaution, like the Self Employed Income Support Grants (SEISS).
The self-employed are deemed some of the most common applicants in need of special attention post-pandemic, due to the financial irregularities of 2020 through to 2021 but those who were already struggling are also impacted and seeing their mortgage options dwindle.
Darryl Dhoffer, mortgage and protection consultant at The Mortgage Expert, said: “Complex case history has been, and continues to be, a growing market, and since Covid we’ve seen this trend rise dramatically. There are a lot more cases coming through from people who have had Covid blips – anything from a mispayment to some level of arrears, to county court judgments (CCJs) and bankruptcy. It’s a growing trend that’s not going away.
“If you’ve got a habitual client who can’t control their debts through choice then that’s a tough sell, but those who are just unfortunate who have fallen on hard times shouldn’t be outcast from lenders.”
Aaron Strutt, product and communications director, Trinity Financial said there were a lot of self-employed people with multiple revenue streams, as well as visa issues for foreign nationals without settled status, income stretches and so many different types of clients trying to get mortgages.
He added: “Unfortunately, we’ve moved to an environment where you either qualify or you don’t, which means that a lot of people aren’t going to have much chance.
“We’re also seeing a lot of borrowers struggling to get large enough mortgages when they ring their bank – so they have to look further.”
Lender behaviour caused serious issues
It was also suggested that lender reactions to the pandemic has pushed some borrowers into the complex bracket where they might not have been before.
Tony Nunn, national sales director, Charles Derby Mortgage Bureau said: “The first issue was loan to value (LTV) limits, but high LTVs have returned and so it should all be plain sailing, but apparently not. Other issues such as furlough evolved from Covid, but none had a bigger impact on the misfortunes of borrowers than the SEISS.
“The self-employed space became yet more complex as individuals came to odds with levels of income that may have become distorted because of the tax year 2020 to 2021. Earnings for some in that tax year took a hit, and so SEISS presented a lifeline that they either needed or chose to take as precautionary measure.”
He said some lenders “quickly threw up barriers for those who had taken the grant”, while others chose to disregard any income derived from that tax year. Nunn claimed that disregarding the pandemic year, which was meant to make it easy on those who had suffered financially, was not always helpful.
Nunn said: “This is problematic if you underwrite on an average of the last two years. I say problematic because some self-employed business grew but had still taken the grant as precautionary and could always have given it back, but they shouldn’t have been penalised because of it, and had their income for that tax year disallowed even if it was clearly profitable instead.
“Eventually common sense prevailed and some lenders in the specialist arena saw an opportunity to lend and decided that they would look at the clients’ earnings by bank statements and should it be at the levels it once was, would treat it in exactly that way. However, it still presents a problem for some.”
Getting more hands-on
The brokers agreed that there was a growing need for a more hands-on approach to applications. One of the main issues cited was brokers not having the skills or resources to meet complex cases amid a shortage of properties and high borrower demand.
Dhoffer said: “Industry-wide we’re seeing a lot of in-house brokers under sudden pressure to learn and quickly adapt to the ever changing market, and not a lot of people can do that. There’s still a lot of cherry picking cases going on which is unfair seeing as everyone should be given an equal chance.”
Strutt said: “There is a lot going on, especially with the backdrop of rates changing all the time that adds its own level of complexity and urgency. We’ve not been used to rates rising for years and years and so when brokers get a rate change email as often as has been happening lately while a client is putting their paperwork together, which has to be quicker than normal in case the rates change in the meantime, it’s hard to keep on top of it all.”
How to deal with complex cases
The brokers said complex cases were difficult because often the client does not know what resources they actually have that could qualify them. Along with a lack of expertise in the industry and lenders changing their products at a moment’s notice, how to deal with it all has become a major headache for brokers.
Dhoffer said: “The easy fix is that every client we speak to and meet face-to-face, we insist on getting their full credit report and history. There are still a lot of brokers who just go by what the clients tell them, but the client won’t necessarily know what’s in the background. We take their full credit reports then piece together what we can do and what lenders we can work with to progress any kind of case. It’s about knowing your client and more importantly knowing lenders criteria.”
Strutt said lenders were “increasingly sympathetic” and willing to adapt their criteria and make lending more open for those with complex incomes or credit.
He added: “There’s also direct access to underwriters for brokers to ring up and call up their cases and try and see if there’s a way to get some of these cases that don’t tick all the boxes through.”
Nunn said: “It’s difficult to change the past and so time will be the only healer in this instance, along with perhaps some new entrants from the lending world only looking for one years’ accounting.”
