Mainstream lenders need to adopt manual approach to underwriting – Belton

Even though volume levels may be low compared to the wider market, research by the Intermediary Mortgage Lenders Association (IMLA) found that specialist mortgage lenders’ gross annual lending increased by 19% year-on-year in 2017.

One reason for this increase is that these lenders are able to deal with more complex applications that would normally be rejected by the high street.

For example, those with complex sources of income may not receive a regular stream of income.

Or, a small blip in someone’s credit history is often due to credit issues that can be easily explained, such as a missed phone bill, change in bank account or even an expired credit card.

These individuals often aren’t repeat offenders and often have a good payment history before and after such an event.

Not seen that way

Unfortunately though, high street lenders don’t see it that way.

As a result, some brokers have shied away from the opportunities specialist lending can bring – not wanting to deal with supposedly ‘challenging customers’ and often unfamiliar lenders.

Figures from the Registry Trust showed the number of consumers with County Court Judgements hit a record high in 2017, with 1,138,058 judgments registered in England and Wales.

This means specialist lenders are going to have an increasingly large role to play in helping these borrowers get the financial assistance they need.

It is worth remembering though that it is not just potential borrowers with adverse credit who are given the computer says no.

Complex incomes

The self-employed, contractors and entrepreneurs, all of whom could be very successful, will also likely receive this answer and it is these types of borrowers with complex incomes that tend to make up the majority of specialist lending cases.

Some may be freelancers and have varying monthly incomes, while others may draw income from a salary and dividends.

Unusual income patterns and habits have become increasingly common, however lenders who use automatic credit scoring will often turn these customers away as they do not fit the normal lending criteria.

Brokers need to be aware, however, that these customers will only continue to grow in numbers as the UK workforce evolves.

Look at the self-employed for example; now accounting for nearly five million people and 15% of the workforce in the UK.

Manual underwriting

As such, there is a clear need for mainstream lenders to adopt a manual approach to underwriting. This human touch will not only allow them to take each borrower’s personal circumstances into account, and provide greater flexibility, but also enable them to better understand the customer.

The good news is that overall, brokers are becoming more holistic in their approach.

It’s no longer a question of whether someone is a ‘good customer’ or a ‘bad customer’; instead, brokers are taking the time to ask whether a customer simply needs a different lender better suited to their needs.

Yet to understand which lender is best suited, it’s important that brokers do their own research to obtain a greater understanding of this market and the variety of lenders out there.

We look forward to seeing more and more brokers taking advantage of these opportunities, so they can help every single customer find the best solution for them, regardless of their circumstances.