‘The typical profile of a complex credit borrower is evolving daily’ – Bluestone Supper Club

Bluestone Mortgages held a Supper Club in association with Specialist Lending Solutions in Birmingham on 24 February, with specialist brokers in attendance to discuss the current state of the complex market. 

Mark Hollands, national sales manager at the lender, opened the discussion by saying Bluestone was a “completely different” lender from what it was before the pandemic. 

Following high-than-normal levels of business since 2020, the lender hired a team of underwriters to cope with volumes and prided itself for remaining in the market when others withdrew.

Hollands said: “We were lending to people that nobody else will lend to at the time, so it was really important that we still did exist.

“Since then, our service levels have been 24 to 48 hours. We’ve been absolutely on top of everything, we recruited enough underwriters to deal with even a third more business than we were writing at our peak. So, we’re in a really good spot from that customer-broker journey perspective.” 

Staying with the specialist market for longer 

There is sometimes a disconnect between what borrowers think they will be eligible for and their actual borrowing power, brokers said. 

One said her clients often could afford their mortgage costs, but they were unaware and had concerns about the future. 

She added: “They’re worried about a general increase in prices, inflation and they wonder ‘when is it all going to end?’ Although they know what their mortgage payments are going to be, they don’t know what these metrics will look like in another six months’ time.” 

One broker said it wasn’t just inflation, but also the rise in national insurance tax and interest rates. Another said this was leading more borrowers to take five-year fixes. 

An attendee said: “I think 75 per cent of the borrowers are on a fixed rate. So of course, there’s a bit of a longer-term protection for some people. But for those who need to remortgage now or buy now, they’re going to be impacted by that.” 

It was also mentioned that swap rates had gone up recently, further impacting rates. 

One broker warned: “Households will start to struggle a little bit more; they could start to look at taking on unsecured debt to pay bills to get by. And then where does it go from there? Can they manage that debt or not?  

“If they can’t, coupled with implications, taking on personal debt will impact on your affordability and the ability to get a mortgage. And then even from there, then does it go out of control? Does it end up in in default? An Individual Voluntary Agreement (IVA)? Bankruptcies? Who knows?” 

Tony Nunn, national sales director at Charles Derby Mortgages, said it wasn’t so much about rate changes because if a borrower’s credit file remained static, they would be able to move onto a high street lender eventually. 

Another broker said lenders should consider overlooking small blips resulting from the rising cost of living and possibly introduce a low loan to value (LTV) product to address this. 

Rethinking affordability 

One broker said lenders should accept borrowers who had taken Self-Employment Income Support Scheme (SEISS) grants as there still was not enough provision in this area. 

A representative for Bluestone said if a case was presented in the right way, the lender would consider these borrowers. 

“Affordability is obviously hugely important at the moment, you’ve got house prices shooting that way, because of the supply versus demand issue. We’re also restricted in what we can lend by the powers that be,” the representative added. 

They continued to say it was “interesting” that the Prudential Regulatory Authority (PRA) and the Bank of England were consulting on relaxing affordability rules as it was times like these that the stress test prepared borrowers for. 

However, the relaxation of affordability was welcomed. 

The lender representative said he wanted Bluestone to be one which refinanced people back onto the high street after two years but said: “Actually, we see quite a lot of business come through on a five-year fixed rate because of the stress test. A two-year fixed rate just doesn’t fit but because the the Bank of England allows you to stress the pay rate on a five-year product, that gets the cases through.  

“But it does keep people with us for five years. So, there does need to be more work done.” 

Innovative alternatives and funding restrictions 

When questioned why Bluestone could not partner with private equity loan providers as other specialist lenders had done, another lender representative said restrictions on how many mortgages could be sold above 4.5 times income had a factor. 

“As a lender, it’s very difficult to work but I think for many borrowers, those schemes will have a place. It’s just how they fit and can work in the complex credit market when you’ve got people that are already struggling,” he said. 

He also said the risk appetite of funders influenced what lenders could do. 

He added: “You’ve also got to bear in mind the structure the funding models of lenders. For lenders, like us, capital markets don’t like [private equity loan providers] much.  

“And then also you look at how much business can you do in the sector. So even if we wanted to go out with something that was five times the income of key workers or professionals, how much of our business will our funders allow us to do under that? 

“If it’s less than the 15 per cent that the PRA already allows us to do, let’s say it’s five or 10 per cent of our overall book then how would we restrict that?” 

The lender representative said with loan providers, interest rates were set between six and nine per cent and payable immediately, which did not work with Bluestone as borrowers’ incomes were already being stretched to fit the criteria. 

He also spoke of other lenders who offered low or no interest but came with conditions which meant the lender or loan provider gained a share in the property. 

“There’s a give and take. You either kind of pay upfront with an increased interest rate to get the equity loan now with more beneficial terms when you sell or it’s the other way round, where there’s no interest upfront, but you give away a share of your property.” 

Broker awareness 

Attendees agreed that more could be done to educate brokers and raise awareness around specialist options on the market. 

One broker said it was the rejections from brokers who were unfamiliar with complex cases which helped to grow their business as these borrowers. As a result, they said they would prefer a stronger referral process rather than more specialist brokers in the market. 

A lender representative said there was also a barrier when it came to engaging with mainstream brokers at industry events as many refused to speak with Bluestone, under the impression that as they did not do business with the lender there was no need to speak with them. 

The lender representative said: “Yes, the word is complex credit. But it’s not complex. It’s just understanding and educating yourself to look at what’s in front of you. And knowing who to get who to talk to say, ‘I’ve got this scenario, can you do it?’” 

Brokers at the table said it was easier to get novice brokers into the specialist market as they were unlikely to pick up habits which made them resistant to complex cases or develop a preference for easier, higher volumes of mainstream business. 

Nunn added that he had a colleague who had given his firm a “stack of business” since working there as he was newer to the market.

Another broker said: “We took on three young people, nothing to do with industry, because we found growing your own is a lot better to be able to teach how to read credit reports and how to talk to clients.” 

What lenders can do more of 

When asked if there were any gaps in the specialist market, Gindy Mathoon, co-owner of Create Finance, said more needed to be done to help borrowers who were in IVAs. 

“I probably say it’s being mis-sold if I’m honest,” they added. 

Mathoon said borrowers with IVAs were being asked to have them cleared, then to raise a 30 per cent deposit to get approved for a mortgage and suggested the availability of higher LTV products could help. 

It was also said overlooking adverse cases within debt management plans could assist borrowers. 

Mathoon said: “What we find is that most plans are already formal agreements so creditors will sell on the credit and then re-register the debt once again as a default so the client’s almost getting penalised for it.” 

A lender representative said it was really important to discuss these gaps in lending as Bluestone “thrive[d] off of trends in the market” and noted that it adapted its contractor policy due to IR35 rules. 

“The typical profile of a complex credit customer is almost evolving daily,” they said. 

Attendees

Mark Hollands, national sales manager at Bluestone

Chris Holcombe, new build and national account manager at Bluestone

Chris Lamming, senior business development manager at Bluestone

Gindy Mathoon, co-owner of Create Finance

Dale Townsend, mortgage and protection adviser at Finance Advice Centre

Tony Nunn, national sales director at Charles Derby Mortgages

Matt Warren, independent financial adviser at Finance Advice Group

Michelle Neville, director of new business operations at Clever Lending

Sarah Tinkler, mortgage adviser at Clever Lending