Expert insights into the Specialist Lending Study

Earlier this year, Pepper Money released its latest Specialist Lending Study. It’s our most extensive primary research to date, and takes a broader, detailed look at the views and impacts of mortgage customers. The study covers the cost-of-living crisis, adverse credit, self-employed and first-time buyers.

The coming months and years in the UK mortgage market are likely to be some of the most significant in its history and this study is uniquely positioned to provide brokers and lenders valuable insight into the challenges and perceptions of consumers, which gives brokers the opportunity to improve consumer mortgage outlook.

Now that the study has been available for a number of weeks, we asked some well-known experts on the mortgage market what lessons they had taken from the research. Here’s what they had to say:

Sarah Tucker, managing director of The Mortgage Mum: “I think it’s a fantastic insight into the picture we are all seeing and feeling, but what I loved is that it was summarised with a great, positive mindset that spots and highlights opportunity for growth, rather than focusing on the bleakness of it all.

"This will be what sets brokers apart in 2023, I believe. Those who are truly passionate about making a difference will naturally rise to the opportunity of educating consumers and taking broking that step further.

"This data will certainly be used by The Mortgage Mum team going into 2023 to motivate us all, both in our social media content, and the awareness we have for our future clients.”

Kate Davies, executive director at IMLA: “There is a risk that more people are kicking the can down the road, increasing their debt burden but with little realistic prospect of clearing it. The finding that 19% of those with adverse credit owe more than £10k (not including mortgages or student loan debt) is worrying – that’s a big sum to pay off from residual income.

“The impact of covid and the dramatic cost of living increases fuelled (literally) by the Russian invasion of Ukraine has not been equal – we are demonstrably not “all in this together”. We know that many salaries in the private sector – particularly of those who are already relatively high earners – are increasing faster than public sector wages – and we are currently seeing a wave of industrial action as unions seek to restore some of the balance lost over many years of “austerity” followed by the covid and Ukraine crises.

“If ‘levelling up’ is to mean anything – it must surely look to achieve a degree of greater fairness between high and low earners, and stimulate sustainable wealth so that individuals can form and support families without constantly having to rely on welfare and benefits.

“The optimism of the “hopeful homeowners” highlighted in the report is encouraging – and it is essential that more individuals become homeowners. If we allow a large proportion of individuals and families to remain dependent on the private rented sector, increasing numbers will find, when they retire on modest pensions, that they are unable to afford private rents – and will become ever more dependent on state support in order to avoid homelessness. Paying a mortgage can be regarded as saving – into a valuable asset that will continue to increase in value over a number of years – while at the same time providing a home to live in.

“The high level of private sector rents must be a concern in some areas as it will make it even harder for prospective purchasers to save up deposits. But landlords deserve some understanding here – their financial models have been hard hit in recent years by changes to the tax rules – and they also now face significant additional costs (as yet unquantified) in order to improve the energy efficiency of much of the rented stock.”

Brian Murphy, head of lending at Mortgage Advice Bureau: “The findings of the report paint quite a stark picture of the general concerns of different types of mortgage borrowers, both potential and existing. The data also reflects the industry’s inability to communicate effectively to a large group of potential customers the avenues that exists to enable those with different and complex employment situations and those with adverse credit that access to mortgage finance exists.

“Although the mortgage market has been extremely buoyant particularly in the last two to three years, it is apparent from the report data that many consumers still feel excluded and underserved. Consequently, the industry as a whole need to do more to communicate the message that the market is inclusive, and that access to mortgage finance, particularly via the broker channel provides potential borrowers with the best possible opportunity to achieve their homebuying and homeownership dreams.”

Liz Syms, CEO of Connect Mortgages: “The release of Pepper Money’s Specialist Lending Study is a very timely insight into the issues our customers are facing and will assist mortgage advisers in understanding how best they can help their customers.

“We know the last few months have been particularly difficult for mortgage advisers who have had to navigate the complex interest rate jungle. But we do, however, appear to have settled into the new market norm. Competition has even returned to the market, as we have seen lenders lowering their interest rates to secure more market share!

“But with rates now higher than we have known for many years, we are already seeing the repercussions for our clients, particularly around the affordability of new and existing mortgages.

“In the report, there were many interesting statistics that will help advisers to understand the issues and capture a share of this increasing market. For example, over 20% of customers turn to their bank for mainstream advice. If they have experienced any credit blips or have other complex circumstances, such as being newly self-employed they are likely to be turned away by the high street.

“The report goes on to say 39% look to the internet for information, but specialist lenders without a client-facing presence will not be talking about their offering directly to customers. Therefore, it is up to the mortgage adviser to ensure their website and other marketing clearly show that they can help customers that have complex circumstances.

“There has been substantial growth in adverse credit, but much of it is credit blips on unsecured debt as customers face increasing pressure due to the cost-of-living crisis. It's good to know that lenders like Pepper will help customers that have had blips as little as six months ago.

“The report also highlights the increase in unsecured debt, which may add further pressure to affordability, which could see an increase in debt consolidation business. If someone is part way through a good fixed rate, remortgaging may not be the correct solution, so I expect in 2023, we may well see a rise in second charge enquiries. In the right hands, for the right reasons, debt consolidation using second charges can be a good solution. Advisers who are not familiar with second charges should invest time in understanding the market first or partner with a specialist packager like Connect.”

Nicola Firth, founder and CEO of Knowledge Bank: “It’s sad but perhaps not surprising to read in the study that the number of people experiencing adverse credit problems has increased given the cost-of-living crisis that many are facing. We saw this reflected on Knowledge Bank in 2022 where out of over 1 million searches in our residential section over the year, eight out of the top ten most searched criteria categories were relating to either adverse credit or affordability. This demonstrates that brokers are searching for solutions, which means that customers are still seeking that advice, regardless of a worsened financial outlook for them.

“The real positive is that there are answers out there for their customers and some solutions that might even surprise experienced brokers! It will be a challenging year but a rewarding one for brokers to know their tenacity in finding those solutions to place those cases has made the world of difference to their clients.”