Recent data from Knowledge Bank revealed a notable increase in the number of brokers hunting for lenders who will consider clients with previous payment issues. It found that ‘missed or late payments’ had entered the top five criteria searches in May, the first time it has registered this highly.
A host of intermediaries have told Mortgage Solutions that they are seeing greater numbers of clients with payment issues, with many unaware of how missed and late payments will reduce their chances of securing a mortgage.
Financial distress
Lewis Shaw, founder of Shaw Financial Services, said his firm had seen an increase in missed or late payments from clients of late.
“Often it’s revolving credit, such as credit cards or ‘buy now pay later’,” or they are related to utility bills, he explained, a situation which Shaw suggests may get worse this year when the energy price cap is increased once more.
Shaw noted that most lenders remain “very wary” about approving an application if there have been recent late or missed payments. “Just as crying is a human sign of emotional distress, these markers on your credit file are the equivalent of a person’s financial distress.”
And he defended their approach, adding: “While some borrowers get frustrated at this, lenders have a duty of care to be responsible; if you can’t afford to pay £100 a month, how will you pay £1,000?”
Do borrowers understand the damage of missed payments?
The increase in clients with missed payments on their records has been “a gradual one”, according to Paul Neal, mortgage and equity release specialist at Missing Element Mortgage Services.
However, he suggested that the rise of buy now, pay later companies reporting to credit reference agencies meant that there would be an increase in short-term finance on credit histories, along with the higher risk of missed payments.
He added: “Many aren’t aware of the impact a missed payment will have on getting a mortgage. If you cannot make repayments on something as small as that, how will a lender expect you to make repayments on one of the biggest purchases you will ever make?”
This was echoed by Imran Hussain, director at Harmony Financial Services, who agreed that too often borrowers are unaware of the impact of missed payments, and also pointed to buy now, pay later companies as a cause for concern.
Hussain said that he had seen an uptick in missed payments among clients, typically on utility bills or unsecured credit.
The impact of the pandemic
Graham Cox, founder and director of Self Employed Mortgage Broker, said that his firm were seeing “quite a lot of missed payments” on borrower credit reports, particularly tied into difficulties during the worst of the pandemic.
“With the cost of living skyrocketing, it’s likely that missed payments on credit card, utilities and loans will only get worse.”
Taking a flexible view
Imogen Sporle, head of term finance at Finanze, said that missed payments are far more common today, starting: “If I compare credit reports I see now to what I did four years ago it is now far more of a surprise to see a clean credit report.”
However, while she praised lenders for being “more relaxed” now about missed payments, she suggested they could do more by ditching automated credit scores, which she suggested often declined clients without taking an in-depth look at their records.
“For example, I have seen a DIP decline for a first-time buyer with only two credit cards on their report, but had other clients accepted by the same lender based on credit who have missed multiple payments in the last 12 months on loans,” she explained.
Jane King, mortgage and equity release adviser at Ash Ridge Private Finance, said that she was not seeing increased missed payments, but said that in the past when clients have had black marks on their credit records she has tended to go to smaller building societies.
She explained: “They are more prepared to take a flexible view, especially if the late payments have been due to a one-off event such as divorce. I can often speak to an underwriter directly and hopefully present a robust case, and often they will offer standard rates rather than the higher rates typically offered by traditional sub-prime lenders.”
King added that the “high street, tick box mentality lenders are a waste of time” unless the late payments are at least three years old.
This was echoed by Cox, who said: “If you’ve more than one or two missed payments in the past two years, many providers won’t lend. One or two specialist lenders will consider it, but they tend to be more expensive, so very much a last resort.”
