Cost of living pressures becoming more pronounced for near prime borrowers

Atom Bank has released the latest edition of its Near Prime Index, with a particular focus on the challenges faced by near prime first-time buyers.

The H2 2025 research shows that defaults remain the biggest contributor to near prime status, appearing in 73% of Atom Bank cases.

Cost of living pressures have become a more significant catalyst for near prime, cited as the primary reason by 71% of brokers surveyed, up from 62% in the last Index.

Other key factors include increased reliance on consumer credit (56%) and the impact of life events (48%), according to brokers.

Demand for near prime is expected to continue to grow, with two-thirds (65%) of brokers forecasting a slight increase, and 12% predicting a significant jump.

Lender capacity for adverse cases is improving, with more than three-quarters (77%) of brokers reporting an increase in appetite for such deals from mainstream lenders over the last six months, and one in 10 (12%) noting a significant increase.

The price premium faced by near prime borrowers, compared with prime borrowers, has decreased over the last 12 months, brokers say, suggesting competition is pushing prices downwards.

Different types of near prime borrower

The Index identifies two typical profiles borrowers tend to fall into: The Rehabilitator and The Starter.

Rehabilitator borrowers tend to be older, with an average age of 40, are already on the housing ladder and looking to borrow at LTVs of below 85%. They have fallen into near prime because of previous credit issues, usually sparked by a life event such as a divorce or job loss. They are more than capable of servicing a mortgage, but require a lender willing to look beyond their headline credit score.

Starter borrowers are younger, generally around 35, and looking to access the housing ladder for the first time. They are typically looking to borrow at around 90% LTV, and have lower average household incomes than prime borrowers looking for the same LTV levels (£58,000 compared with £70,000).

The Index also makes clear that high LTV lending is not synonymous with higher risk. A fifth (20%) of Atom's near prime borrowers at 90% LTV have no adverse events in their record, while 29% have only one. These borrowers are falling into the near prime category because of a lack of credit exposure or missed payments, which do not lead to defaults or CCJs, rather than because of a lengthy history of credit issues. 

The first-time buyer challenge

This edition of the near prime Index looks in greater depth at the challenges faced by near prime first-time borrowers, given data showing its growing importance for those hoping to take their first step onto the housing ladder.

Near prime skews towards first-time buyers among Atom’s customer data, with 59% of all near prime borrowers attempting to take their first step onto the housing ladder, compared with 41% of prime borrowers.

First-time buyers also account for an increasing proportion of brokers’ near prime clients, representing an average of 30% of their client numbers, up from 25% in the last Index.

More than a quarter (27%) of brokers pointed to a ‘thin file’, rather than actual payment issues, as a particular problem for near prime first-time buyer clients. Research from Experian suggests around five million people in the UK are effectively invisible to the credit system due to a lack of financial data.

Deposit size was pinpointed by more than a third (36%) of brokers as the single biggest barrier to submitting an application for near prime first-time buyers, highlighting the need for more high LTV options.

LTVs were identified by 39% of brokers as the most crucial feature they look for from a lender, ahead of a flexible approach to credit history (38%). 

Richard Harrison, head of mortgages at Atom Bank, commented: “The housing ladder only functions if first-time buyers can access it. However, as our latest Near Prime Index makes clear, that accessibility is increasingly reliant on lenders being more flexible over the credit profile of the borrower, whether that’s due to payment hiccups in the past or simply the fact that the borrower has little credit history to speak of.

“A broader range of high LTV near prime products is essential, with the LTVs on offer often the primary driver for lender selection. While brokers have reported seeing greater levels of competition among mainstream lenders, this progress may have stalled due to the current market uncertainty. We must hope that progress not only resumes when the conflict concludes, but that we see it result in greater choice for borrowers at all deposit levels.”

David Castling, head of intermediary distribution at Atom Bank, added: “In the last Index, the proportion of brokers’ near prime clients who were first-time buyers stood at 25% on average, but it’s now risen to 30%. Near prime is evolving into a crucial access option for those looking to get onto the housing ladder, with buyers increasingly reliant on lenders who can treat apparent credit problems on a case-by-case basis.

“First-time buyers and existing homeowners alike are seeing the impact of cost of living pressures, with the effects of rising bills and persistent inflation pushing more borrowers into the near prime category. Brokers have been clear that lenders need to take a more details-based approach to these borrowers, getting a better understanding of their specific circumstances rather than viewing all adverse credit the same way.”