What is a typical borrower? A few decades ago, it would have been a salaried employee, single source of income and, most likely, a clean credit file.
However, the financial crisis, a pandemic, a cost-of-living shock and a fundamental shift in working patterns have made that question much harder to answer today.
20 years ago, zero-hours contracts were virtually unheard of. Today, a record 1.23 million people earn their main source of income this way. And after dipping post-pandemic, the number of self-employed workers in this country has again exceeded 4.5 million.
Multiple crises and the cost-of-living squeeze have taken their toll on household finances too. According to Registry Trust, some 316,002 new CCJs were added to its register in the first quarter of this year alone, bringing the total to nearly 5.4 million. Many more borrowers will have suffered missed payments or defaults that never reached that threshold.
In other words, the contractor, the self-employed borrower with retained profit, the first-time buyer with a satisfied CCJ from three years ago – these are not unusual cases anymore. They are increasingly mainstream.
Data from TMA’s mortgage helpdesk underlines the point. Across the first quarter of this year, the two largest categories of support requests from brokers were adverse credit and income type, which together accounted for nearly a quarter of all cases.
Our helpdesk exists to help brokers place difficult cases, so naturally the data will be skewed towards the specialist end of the market. But the fact that adverse credit and non-standard income have been among the most popular enquiries for well over a year suggests that what was once considered niche is increasingly becoming the norm.
Unless there is a radical shift in our economic fortunes, or a reversal of the working patterns that have taken hold over the past two decades, this is a trend that will continue. In fact, specialist lender Together forecast at the end of 2024 that the specialist mortgage market would grow by 70% to £54 billion by 2029.
What does this mean for brokers? Primarily, it means that the cases landing on your desk are increasingly going to involve some element of complexity. For brokers who have traditionally focused on straightforward cases, now is a good time to get more familiar with this end of the market.
The most important thing when dealing with clients with irregular incomes or adverse credit history is not to rule them out too soon. The specialist lending market has matured considerably in recent years, with most borrower types now well catered for.
It’s also important to remember that a ‘blip’ can mean many different things, some less serious when applying for finance than others. A missed mobile phone bill from 18 months ago is a very different proposition from a CCJ that is three months old. And a satisfied CCJ is not the same as an outstanding one.
Similarly, a contractor on a day rate with two years of consistent work is not the same risk as someone three months into their first fixed-term contract. Knowing that a lender will consider a particular income type or credit profile is only the starting point –understanding how they treat the specifics is where cases proceed or fall down.
Bear in mind too that help is available when seeking the right solution for your clients. Rather than spending time working through lenders that are unlikely to say yes, brokers can use helpdesks such as TMA’s to help narrow down the list of possible lenders and speed up the process for clients.
What we would have once considered a ‘typical borrower’ has not disappeared. But the range of people who fall outside of that definition is increasing – and there is nothing to suggest that is about to change.
