Broker proactivity can ease path back to prime

One of the lessons we’ve taken from the ever rising levels of interest in our near prime range recently is that brokers are seeing an awful lot of clients who have experienced a payment issue in the not-too-distant past.

The immediate priority for brokers with these clients is finding lenders active in this sector, who can support a purchase or a refinance. But there is also a longer term question around whether lenders can both finance those current needs, while supporting the borrower in restoring their prime position.

REMOVING BARRIERS

A frustration we hear from some brokers around near prime is how lenders can make things unnecessarily difficult for their clients.

The client has obviously experienced some sort of payment problem in the past – that’s why they are on a near prime product, after all. Yet if those issues reappear, there can be a lack of flexibility around how that is handled, for example through imposing missed payment and arrears fees.

As a lender, I firmly believe we should want to help the borrower back to prime status. So if they do have a payment issue, the priority should be supporting them in getting back on track. That will always be harder to do if they are having to cough up further penalty fees on top of the regular repayments.

Being proactive in working with clients before those struggles snowball is also important. A stitch in time saves nine.

While some lenders might take a hands off role when it comes to monitoring borrowers, we prefer to be on the front foot, proactively tracking the accounts of near prime customers so if the warning signs emerge, we can act quickly before they develop further.

RECOGNISING PROGRESS

It’s important for lenders in this space to take into account the progress borrowers have made with tackling their issues.

A good example here is the treatment of unsatisfied defaults. At Atom bank, borrowers with up to £2,500 of unsatisfied defaults can qualify for our near prime range, but what’s vital to bear in mind is that figure is the current level of debt, not the starting point.

The borrower may have started with £5,000 of defaults, perhaps even £10,000, but could still be eligible because of how much has been cleared already.

Getting back to prime is a journey, and it will take time. Brokers need to engage with lenders who employ criteria which actively supports them over the journey, making it easier to regain prime status and acknowledging the distance they have already travelled.

CHANGING CIRCUMSTANCES

Ideally, over the course of the fixed term, the borrower will have seen their circumstances improve. Those black marks which had pushed them into the near prime category will have faded in importance, or perhaps disappeared entirely from the assessments, meaning they can once again qualify for prime products.

The benefits here are obvious. The borrower will have a wider range of options from which to choose, and those products will be more attractively priced.

Not all lenders will be able to support that transition, though. The specialist lenders who target adverse borrowers don’t tend to operate in the prime space – when they offer the borrower a rate at maturity, it will once again be on a near prime product and likely come with a higher interest rate.

This is why it can be impactful to work with lenders who understand both the prime and near prime space. At Atom bank, when the fixed rate term ends, the borrower will be automatically offered a prime rate if their circumstances have improved and they meet the eligibility criteria.

It’s about supporting them not just in the here and now, when they have a less than perfect record, but in the future too, once the situation has progressed.

THE LEGACY OF PAYMENT ISSUES

Some may view near prime as something of a niche area, but I’d argue that is a mistake. Recent years have presented a host of challenges to borrowers, and the result has been plenty of people have missed a payment or two and so now have an imperfect credit record.

They still need access to mortgage finance, whether they are looking to purchase a new home or refinance, but they also need support in rebuilding their credit record and once more being classed as a prime borrower.

For brokers, the challenge is to be proactive in identifying the lenders who work for the client not just today, but all the way through the path back to prime.