The rise of adverse credit lending

As we have progressed through this year, we have seen constantly changing lending criteria in this increasingly competitive area of the marketplace. Traditionally, we have contacted lenders and packagers for assistance in this area of the market to utilise their expertise and experience. With the changing market, we now have more access to lenders and often submit our business directly to avoid any additional fees for clients. However, with new lenders launching on a regular basis it is virtually impossible for us to keep up-to-date with the ‘niche areas’ of policy, where each of these new lenders will offer a unique solution for our customers.

Although we rely heavily on mortgage sourcing software which, whilst providing a good guide for general criteria, doesn’t provide the knowledge and experience of this ever-changing landscape to ensure that our clients are obtaining the best available solutions for their needs. More than ever, our expertise is needed for guidance through the minefield of income and expenditure assessment. Some lenders credit score, whilst others individually assess cases. Lenders have different stress test policies for their affordability, whilst others penalise borrowers with lower incomes, some continue to count historic adverse credit as current, dramatically reducing borrowing levels.

There is also a massive discrepancy in the levels of overtime and bonus lenders will consider when assessing the application. There can be a large difference in income multiples of between three and five times income between specialist lenders. Many of the above criteria niches wouldn’t be outlined clearly through an automated process. Buy-to-let is a growing sector of the market for new enquiries as lenders and clients are adapting to the recent taxation law changes, though unfortunately double digit interest rates are not uncommon. Criteria amendments in this area of the market have been widespread with the introduction of new stepped and manually calculated affordability assessments. Whilst computers are able to provide a black and white answer to criteria requirements the human touch allows us to look at ways to maximise our client borrowing by utilising enhanced calculations and applicant earned income which again aren’t clearly outlined within the standard systems.

There have also been numerous recent improvements to adverse credit criteria. For example, changes to the levels of defaults which can now be ignored and major enhancements to debt management criteria. It is now possible to complete a new purchase and to continue with a performing debt management plan. However, once again caution should be exercised and there are many different ways that lenders calculate the current debt management against affordability and it is vital that the correct lender is selected in this instance.

Lenders will continue to look at minor enhancements to adverse criteria as it remains difficult to make radical changes due to the influence of both the funder and regulator. With the average number of enquiries increasing across all areas of the mortgage market, caution is needed as both lender fees and higher interest rates can make for expensive borrowing and advice can sometimes be to wait, clean up your credit file and re-asses with a better credit history in the future.