Atom bank has called for lenders to adopt greater flexibility and understanding towards borrowers with imperfect credit histories, as it launched its first Near Prime Index.

The new twice-yearly report combines economic data, Atom’s own lending trends and broker feedback to chart the evolution of the near-prime mortgage sector — the growing segment of borrowers who fall just short of mainstream “prime” lending criteria.

The inaugural edition, covering the first half of 2025, highlights the mounting importance of near-prime lending in light of cost-of-living pressures and the widespread use of ‘buy now, pay later’ services, which can damage credit scores.

According to Atom, more than half of its near-prime borrowers are first-time buyers, underlining the sector’s critical role in helping people onto the housing ladder.

Around a fifth of cases involved households earning between £75,000 and £100,000, while a further 10% were from those earning £100,000 to £150,000, showing that credit issues are not confined to lower-income groups.

Self-employed borrowers were also found to make up a higher proportion of near-prime cases, suggesting that fluctuating incomes can easily affect access to mainstream finance.

Among clients, the most common concerns reported by brokers were high interest rates (39%) and the fear of being rejected (30%).

CALL FOR ‘COMMON SENSE’ LENDING

Brokers surveyed for the report called on lenders to apply more individual, case-by-case judgement rather than relying solely on rigid automated systems. They urged lenders to price products according to actual risk, arguing that such an approach would open up the market to more borrowers.

They also said that lenders should do more to educate customers about the behaviours that lead to near-prime status — and how to move back towards prime eligibility.

RISING DEMAND FOR NEAR-PRIME PRODUCTS

Atom said it had seen record levels of activity in the near-prime space over the past 18 months, including its busiest month to date in September. The bank attributed this to the growing number of borrowers whose credit files have been affected by missed or late payments amid recent economic challenges.

Richard Harrison, head of mortgages at Atom bank, said the findings revealed both the scale of the market and a degree of frustration among brokers. He said: “This inaugural Near Prime Index has allowed us to take the pulse of what’s happening in the mortgage market for borrowers with imperfect credit scores.

“And what’s clear is that while this is a segment of the market which seems set to grow, brokers are frustrated with the approach of some lenders.

“Near Prime is not something which only applies to a certain subset of borrowers – a single payment issue can have a large impact on a borrower’s record, and they are often driven by a life event or incident rather than ill discipline.

“As a result, it’s vital for lenders to be more open minded, to treat such cases proportionately and based on the individual factors at play.”

INNOVATION IS KEY

David Castling, head of intermediary distribution at Atom bank, said innovation would be key to the sector’s future.

“The report points to a need for innovation, especially in generating more high LTV options. We have seen striking levels of demand since increasing our maximum LTV on Near Prime to 90%, demonstrating how valuable such products are.

“Technology is too often seen as a barrier, with automated assessments making life harder for borrowers with adverse credit. But, when applied properly, it will mean Near Prime borrowers enjoy the same certainty at pace which is available to Prime applicants.

“However, the key remains education. This outlines the value of the advice process, with brokers at the forefront of clearing up misconceptions about Near Prime, not only helping clients understand why they have dropped out of Prime eligibility, but helping them return to Prime status.

“Lenders must make that path back to Prime as straightforward as possible – a minor payment bump in the road should be treated as such.”

Atom said it plans to publish the Near Prime Index twice a year to monitor changes in borrower behaviour and lender approaches as the market evolves.