Adverse credit and the mortgage application journey

In today’s housing market, securing a mortgage can be challenging for anyone, but it’s particularly daunting for those with adverse credit. The term “adverse credit” refers to a history of financial difficulties that may include missed payments, defaults, or other forms of blips on a credit report. This can significantly impact a customer’s ability to obtain a mortgage from mainstream lenders. For mortgage brokers, understanding the market nuances for those with adverse credit is crucial to providing customers with the best possible guidance and support.

This blog delves into the latest research report conducted by Bluestone Mortgages and trends surrounding adverse credit in the mortgage application journey, focusing on how brokers can navigate these challenges to better serve their clients. By staying informed on current statistics and trends, brokers can play a pivotal role in helping their customers with adverse credit secure the mortgage they need to achieve their homeownership goals.

Contents:

1. Understanding Adverse Credit: What Does It Mean?
2. The Impact of Adverse Credit on Mortgage Applications
3. Consumer Confidence and Adverse Credit: A Growing Concern
4. The Role of Brokers in Guiding Adverse Credit Clients

Understanding Adverse Credit: What Does It Mean?

Adverse credit, commonly known as ‘bad credit,’ is a term well understood by most experienced brokers, describing various financial setbacks that can negatively impact a person’s credit score. For new brokers entering the adverse market, this section provides an overview to help build a solid understanding of adverse credit and its potential effects on clients. Adverse credit may include missed credit card payments, defaults on loans, County Court Judgments (CCJs), or bankruptcy. For individuals with adverse credit, securing a mortgage is often fraught with difficulties, as traditional lenders are likely to view them as high-risk borrowers.

The mainstream mortgage market tends to be unforgiving for those with less-than-perfect credit histories. As highlighted in our latest research, a significant portion of customers with adverse credit find themselves turned away by high-street lenders. Specifically, one in seven consumers (14%) have been denied a mortgage due to their credit history, with this figure rising to 38% among those with adverse credit​.

For brokers, this means that understanding the specific challenges faced by adverse credit customers is essential. By doing so, brokers can more effectively guide these cohorts of people towards a tailored mortgage for adverse credit that suits their needs, often provided by specialist lenders like Bluestone Mortgages, who are more willing to consider applicants with complex credit histories.

The Impact of Adverse Credit on Mortgage Applications

The impact of adverse credit on mortgage applications at traditional mortgage lenders is profound. Consumers with adverse credit often face higher rejection rates from mainstream lenders, leading to feelings of discrimination and frustration. Understanding what adverse credit is and how you can help these customers is essential, as nearly three in ten adults (29%) have struggled to secure a mortgage due to previous blips in their credit history. This is not just a financial burden but also an emotional one, as 51% of those with an adverse credit history feel discriminated against by lenders.

This sense of rejection can severely diminish customer confidence. In fact, our research found that 28% of those with adverse credit are not confident at all in their ability to secure a mortgage, compared to just 12% of the average customer​. This lack of confidence can discourage potential applicants from pursuing their homeownership dreams, perpetuating a cycle of financial exclusion.

It is critical for mortgage brokers to recognise and address these concerns. By providing clients with clear, empathetic guidance and exploring all available options, brokers can help restore confidence and empower clients to take the necessary steps towards securing a mortgage.

Consumer Confidence and Adverse Credit: A Growing Concern

Consumer confidence is a critical factor in the mortgage application process, and it is particularly fragile among those with an adverse credit history. As the cost-of-living crisis continues to affect household finances, missed payments are becoming more common, pushing more people into the category of adverse credit.

Our latest research highlights that those with adverse credit are significantly less confident in their ability to secure a mortgage. Only 5% of customers with adverse credit feel completely confident in their mortgage prospects, compared to 24% of the general population​. This confidence gap underscores the importance of targeted advice and support for these customers.

For brokers, this presents both a challenge and an opportunity. By offering tailored advice and connecting customers with specialist lenders who understand the complexities of adverse credit, brokers can play a crucial role in rebuilding consumer confidence. Moreover, educating customers on how to improve their credit scores and manage their finances more effectively can make a significant difference in their mortgage journey.

The Role of Brokers in Guiding Adverse Credit Clients

The role of brokers in the mortgage process is more important than ever, particularly for clients with adverse credit. As specialists in mortgage products knowledge, brokers have the responsibility to guide these customers through a landscape that can often seem unclear and challenging.

Our research revealed that many customers with adverse credit need to be made aware of the options available to them. Over a quarter (26%) of those whose mortgage application was declined were not offered access to a specialist lender. This highlights a significant gap in the market that brokers can fill by providing comprehensive advice and signposting clients to the right resources when it comes to customers looking for an adverse credit mortgage.

Brokers should also focus on educating clients about the steps they can take to improve their credit score, such as paying bills on time and responsibly managing credit. By empowering clients with this knowledge, brokers can help them become more attractive to lenders, ultimately increasing their chances of securing a mortgage.

Empowering Clients Through Knowledge and Support

In conclusion, the mortgage market for those with adverse credit is challenging but possible. By staying informed on the latest trends and statistics and providing customers with tailored guidance, mortgage brokers can play a pivotal role in helping those with adverse credit achieve their homeownership goals.

Bluestone Mortgages is committed to supporting brokers in this mission. Our comprehensive research into the adverse credit market offers valuable insights that can help brokers better understand the needs of their clients and navigate the complexities of the mortgage application process.

Download our full report here to learn more about the latest trends and statistics in the adverse credit market.