BestAdvice fires the questions at Richard Harrison, head of mortgages, Atom bank.
BestAdvice (BA): You have recently made some significant changes to your Near Prime criteria. Can you talk us through those changes?
Richard Harrison (RH): We believe that the Near Prime market is particularly underserved by the mortgage market as a whole. Atom bank initially looked to fill the space between mainstream lenders and specialists, meeting the needs of those borrowers with the odd blip in their credit history, but as we have become more established it’s become clear that we are well positioned to help meet the needs of even more customers in this bracket.
In terms of what that looks like, we have more than doubled the level of unsatisfied registered defaults which a client may have, from £1,000 to £2,500. There has also been an increase from £250 to £500 in the level of unsatisfied registered defaults for communication and utility bills, while we have reduced our look back period for defaults from three years to two.
These criteria changes are just the latest step in our aim to be one of the leading Near Prime lenders in the market. We have maintained competitive pricing on the range, and we’ve already removed missed payment and arrears management fees to ensure we support customers who may experience some payment difficulties.
BA: What drove the changes to Atom bank’s Near Prime criteria?
RH: We wanted to make sure that Atom bank is the go-to option for brokers with Near Prime clients. There has never been such a need for lenders to accommodate historical credit blips when assessing borrowers, and yet the common feedback we get from brokers is that there aren’t enough competitive options in this market. They are seeing clients on a daily basis who desperately need lenders who will take a more common sense and open minded approach, but this doesn’t seem to be the case much of the time.
A significant advantage we have is our ability to offer customers a prime product after their initial fixed rate matures, should their situation have improved during the term of the loan. Since January, we’ve helped over 80% of our Near Prime customers change their status to Prime and build a more solid financial future. Add to this our leading service, pricing and our most recent criteria changes, and Atom bank has a very compelling proposition in my view.
BA: How significant is the Near Prime market currently?
RH: It’s really grown in recent years. So many of us have seen our budgets come under pressure off the back of the pandemic and the persistently high rates of inflation, and inevitably that has resulted in some people missing the odd payment here and there.
Research from the Money and Pensions Service last year found that around 16 million people missed a bill at some point throughout 2023, and for around two million this represented the first time they had missed a payment.
That’s an awful lot of people, and for many of them it will have been a temporary issue, a bit of a one off. And yet they may struggle to secure mortgage finance from lenders who are fixated on only those with the purest credit records, not only right now but in the years ahead too.
We know from our conversations with brokers that they are seeing far greater numbers of clients with these payment blips on their record, and we believe that with these changes Atom bank is even better positioned to support more of them.
BA: How can the industry better support Near Prime borrowers?
MT: First and foremost, it’s about getting a better understanding of who these borrowers are. Where lenders rely purely on credit scores, there is a real risk that they overlook anyone with a missed payment, rather than taking the time to differentiate between those for whom it was a hiccup and those for whom it was the sign of more long-lasting issues.
It’s also crucial to recognise that being classed as Near Prime does not need to be a long-term issue. As these clients keep up with their repayments, and put that payment blip behind them, then it’s vital that they are offered a route back to Prime borrowing.
Finally, there is room for lenders to do more on opening up the non-pricing benefits that Prime borrowers enjoy to Near Prime customers. All too often Near Prime borrowers are excluded from some of the processes that might be used on Prime cases, meaning that not only are they paying more for their mortgage but also have to put up with a slower, less efficient process.
It’s something we are looking to correct at Atom bank, for example by using the same AVM criteria as Prime on our Near Prime cases.
