Landlords, credit issues and the specialist solutions

Arrears, defaults, adverse credit and CCJs are not the easiest of topics to tackle at the best of times, especially during a period when we’re looking to build on the market positives rather than focus on any negatives.

However, these credit issues are something we, as an industry, have to be mindful of as many are somewhat inevitable given the transition from a historically low interest rate environment, following a global pandemic and in a time where household and general costs have rocketed.

The financial challenges facing people across the UK were evident in the latest data from the FCA which suggested that the number of people struggling to meet bills and credit repayments has risen by 3.1m over the past 12 months. 10.9m people in the UK are now reported to be struggling to make repayments, compared to 7.8m in May 2022. The number of adults who missed bills or loan payments in at least three of the last six months has also gone up by 1.4 million, from 4.2 million to 5.6 million over the same period.

Additional data from UK Finance outlined that the number of homeowners in arrears on their mortgage has risen 2% in Q1 2023 - with 76,630 borrowers in arrears of 2.5% or more of their outstanding balance. Within the total number of borrowers in arrears, 27,700 of the mortgages were in the lightest arrears band, which represents arrears of 2.5% to 5% of the outstanding balance - an increase of 5% on the previous quarter.

With some tenants struggling and an array of costs/outgoings piling up, the landlord community have certainly not escaped these financial challenges. Additional data from UK Finance highlighted that buy-to-let mortgages have also experienced a rise, with 16% more borrowers in arrears (7,030 mortgages) than the previous quarter.

In light of these ongoing credit concerns, it was interesting to see a headline emerge around unconventional borrowing solutions topping broker priority lists in Q1. This was based on research from TMA Club’s Broker Support desk which saw a sustained focus on queries regarding adverse credit. When focusing on the buy-to-let sector, this also suggested an increase in the number of queries around top slicing, as brokers continue to seek out creative solutions to maximise borrowing, particularly in regions where property prices are inflated, or deposits are especially large.

As a lender who incorporates top slicing into our buy-to-let proposition, we have certainly seen how useful such a facility can be in the current marketplace and this is a trend which is likely to continue. In response to better supporting landlords who may have had some historic - or more recent - credit issues, we have also recently launched a Prime Plus 1 buy-to-let product.
I won’t go into the specific criteria requirements as we carefully evaluate such cases on an individual basis but to offer some idea we may consider applications with satisfied defaults on utility bills, telecoms, mail order or missed payments on a mortgage or unsecured loan – although the mortgage must be fully up to date at the new application stage.

Life events happen and, as we’ve seen, they can have a number of financial repercussions, some more serious than others. But that doesn’t mean such borrowers don’t remain credit worthy. For lenders, it’s all about providing responsible and competitive solutions to help landlords overcome any credit blips and support them in their quest to supply good quality homes which meet ever growing tenant demand.

As I said earlier, credit related issues are not always the easiest conversation to have but when looking for solutions for such landlord clients, then the approach of specialist lenders should always be at the heart of this discussion.