Supporting borrowers during a cost-of-living crisis

The concept of time has been particularly bewildering over the past few years. Some weeks felt like months during the initial lockdown yet, when operating in a mortgage market which was absolutely flying, the following months seemed to flash by in the blink of an eye.

Over this time, we have seen a growing band of near mainstream borrowers emerge who are more reliant than ever on the specialist lending market and a good, professional advice process. This is a trend which continues to generate strong levels of opportunity for advisers who maintain a strong handle on the ever-increasing breadth of lending propositions on offer.

From a fiscal standpoint, any household can struggle with cash flow from time to time, especially when combating historic financial issues, rising interest rates and the cost of everyday goods increasing so sharply. And when people start talking about the price of staple foods instead of the weather, this brings into sharp context the additional pressures being placed on all household budgets.

This pressure was evident in the latest Which? research which suggested that an estimated 700,000 households missed a housing payment in April 2023. Missed housing payments were said to be particularly high among renters, with one in 20 (5.2%) renters surveyed missing a payment over the course of the month. In addition, 3.1% of mortgage holders surveyed were reported to have missed mortgage payments as Bank of England interest rates continue to climb.

So how does the size of this cohort of borrower type compare to last year? Overall 2 million households missed or defaulted on at least one mortgage, rent, loan, credit card or bill in April 2023. The 7.3% missed payment rate observed in the research is in line with the level seen at the same time last year, but higher than in April 2021 (6.5%) and April 2020 (5.2%). Bills remained the most common type of missed payment among the population as a whole (4.4%) - with energy bills most commonly missed (2%), followed by council tax (1.6%).

In response to heightened living costs, 59% of households reported making at least one adjustment to cover essential spending such as utility bills, housing costs, groceries, school supplies and medicines. This equates to an estimated 16.6 million households. Adjustments include cutting back on essentials, dipping into savings, selling possessions or borrowing. This is consistent with the high adjustment level seen for the past year, and matches the level seen in April 2022, but is much higher than the 35% seen two years ago.

Households are adjusting, and the affordability models of lenders are consistently reappraised to account for this new change in assumptions for customers’ spending and financial resilience.

For mortgage advisers, naturally, you want to reach out and help as many of those customers as possible to continue with their plans to become home owners or simply maintain their current situation affordably.

This is where lenders who incorporate a manual underwriting process can play a major role as it allows us to take a wider, deeper look into credit histories and take a more holistic approach around how, why and where a credit blip may have occurred. It also allows us to go beyond a tick box approach and create a bigger picture of a borrower’s historic, current and potential earning pathway and - in many cases - we are able to help, provided no further credit blips have occurred in the six months prior to an application.

As the past few years have shown, life happens and extraordinary events appear to be getting less unique. Many of these events have been far beyond the control of many people and it’s vital that the lending community does not stifle the borrowing needs of those who remain credit worthy going forward, while also supporting them in the present.