Home Truths: Helping specialist customers will help broker businesses

As a specialist lender, we often speak to brokers who say that they don’t have customers with specialist requirements. This has always puzzled me as the number of customers whose individual circumstances require a more hands-on approach has been growing at pace in recent years – and this growth is set to escalate as we move into 2023.

You don’t need to take my word for it – just look at the data. At Pepper Money, we have recently published our latest Specialist Lending Study, based on research we undertook in partnership with YouGov amongst a demographically representative sample of more than 6,000 people.

The research has found there are now 7.91 million people with adverse credit in Great Britain, which is up from 6.29 million just 12 months ago. And, with a higher proportion of respondents admitting to missing payments in the last 6 months, this number is likely to grow further.

With more than 15% of the population having adverse credit, this means that if you have 100 customers in your database, more than 15 of those customers will potentially have specialist requirements as a result of their credit record.

It’s not just adverse credit that could leave a customer excluded by the high street. The self-employed can also struggle to achieve the loan they need from a mainstream lender. The ONS says that more than 13% of workers are self-employed and our research found that more than three quarters (77%) say that being self-employed makes it more difficult to be approved for a mortgage.

One challenge for self-employed customers can be that many mortgage lenders base the affordability of a mortgage on the average of the last three year’s profit. However, with Covid impacting most businesses in 2020, many businesses have made stronger profits in their last year than the previous two years. Our research found that 20% of self-employed people say that their business made over 10% more profit in the last year than the previous two years. And it’s not just the self-employed whose earned income can be variable. According to our research, a quarter (25%) of all workers earn variable income, which isn’t always best accounted for by lenders that take an automated approach to underwriting.

As a specialist lender, at Pepper Money for example, we specialise in lending to self-employed customers, with criteria and processes that are designed to meet the particular circumstances of self-employment. Our hands-on, human approach to underwriting means that we don’t have to rely on an average of the last three years’ accounts. In fact, we can lend on the most recent year’s figures, which can make an important difference in helping the self-employed secure the loan size they deserve. We are also able to consider other forms of variable income, even for customers who receive a salaried income.

Irrespective of a customer’s desire to maintain or improve their circumstance, everyone is facing a challenging period ahead. The cost-of-living crisis is putting the squeeze on household finances and economic uncertainty looks set to continue, which may make many people put their life plans on hold and is likely to slow the property market. At the same time, expectations of affordability constraints may deter customers from remortgaging at the end of their existing deal, with many instead choosing to accept an offer of a product transfer from their lender, even if it’s not the best deal for their circumstances.

Brokers have a huge role to play in helping their customers to navigate the coming months, enabling them to continue to move towards their life plans. But it’s not just their existing customers that they should be thinking about. Our research highlights that 24% of customers would turn to professional advice first, down from 44% in Winter 2021 study. So, brokers need to be proactive in marketing their services and where they can add real value. We have found that, for most customers, their journey in looking for a mortgage starts online, and brokers have an opportunity here to ensure that their online presence delivers a positive reflection of the value they can provide to reach more customers relying on online searches and those who are just unsure.

This approach won’t just enable brokers to help more customers, but also to help protect their business as well.