The changing landscape of specialist lending

Changes to the way people work post-Covid-19 are also likely to increase the number of customers with more complex incomes. For example, freelance workers could be on the increase if there is a lot of redundancies, or we may see more customers with more than one job to help increase their income.

In the short to medium term, we’re likely to see an increase in more ‘near-prime’ customers, such as those who have needed to borrow their way through the pandemic and now struggle with high debt-to-income ratios and lower credit scores.

Whilst government support schemes will have assisted a decrease in mortgage arrears, there will be many customers who’ve been affected financially by Covid-19 and have either smaller missed payments on their file, or failing credit checks due to an increase in their debt. Brokers will very likely see customers who have always been mainstream previously needing to look closer at specialist lenders, even if temporarily.

Overcoming challenges

A heightened need for specialist lending means tackling one of the biggest barriers facing the market: a lack of familiarity and understanding.

Whilst many specialist lenders, like Pepper Money, are available to intermediaries, there is a large percentage of their customers who don’t know what we’re able to offer them. If they’re not aware the help is there, they won’t contact an intermediary in the first place. Too many people seek advice from ‘Frank down the pub’ rather than professionally, meaning missed opportunities across the board — for the customer, the broker, and the lender.

Raising awareness can help overcome this challenge. As many specialist lenders are only available through an intermediary, the best way to raise awareness is through our brokers’ “shop window”.

As a lender, we’re also trying to raise awareness of the specialist market more broadly, by adding an increased focus on education to help brokers reach more customers. We include the latest research and insights from the market in our presentations and conversations with brokers, this helps them identify new areas of focus and provides them with the detailed background to use in their discussions with customers.

Adverse credit is more common than people think, and this is something we’ve highlighted in our research in conjunction with You Gov. Although we are an intermediary only lender, we feel it’s important to do our bit to educate customers so that they’re aware of what support is there for them. Many of our brokers have used our Adverse Credit Study as a useful tool to show just how common financial blips can be and aid a detailed discussion.

However, specialist lending extends beyond adverse. Often it helps customers who are recently self-employed and have started building successful businesses. This is another area where more and more customers are finding it difficult to secure a mortgage on the high street and specialist lenders are stepping in to help with their more complex situation. Many will have borrowed in order to cover setup costs and, whilst they may not have missed any payments, their credit score will be lower, and a mainstream lender may view them as over-indebted.

Helping you thrive in the changing landscape

With a more diverse range of customers turning to specialist lending, it’s important that we’re available to help you in whichever way we can. I’m proud to say that, at Pepper Money, we’ve remained open for business throughout the pandemic, supporting brokers in placing their more complex cases. Whilst, as with all non-bank lenders, we’ve been affected by changes to funding and had to be more careful in certain areas, we’ve continued to accept new business and shared our knowledge and tips with the market where possible.

As we continue through and out of the other side of this pandemic, be confident to advertise to those customers with more complex cases, safe in the knowledge that, in the specialist market, we are here to support you with them.