By Nicola First, Knowledge Bank – This article first appeared on Mortgage Solutions
Namaste brokers. Don’t panic. You’ve not accidentally wandered into a yoga class, but after reviewing the latest criteria, you could be forgiven for thinking that lenders have been practicing their downward facing dog.
Through our work analysing criteria each day, a clear trend has emerged. Over the past few months there has been a marked increase in flexibility from lenders. Particularly in areas such as adverse credit and for self-employed borrowers.
This increased flexibility certainly shows lenders are feeling confident for the future. The economic outlook is positive, and with the end of the furlough scheme, there is hope that things are finally beginning to return to normal.
Lenders’ default position shifting
One of the constants that has run through virtually every monthly criteria tracker in 2021 is the presence of ‘defaults’ or ‘missed or late payments’. In September, despite the economic outlook brightening, two of the five most-searched terms related to defaults.
There are no prizes for guessing the main cause, as the pandemic has negatively impacted the finances of plenty of people. But what has been reassuring is the attitude of lenders towards those with imperfect credit histories.
While there are some lenders who will not consider those with defaults on file, these lenders are now the minority, with a growing number more open to lending to those with chequered financial histories.
Last month Aldermore announced it would consider those with complex credit issues, such as county court judgements or defaults. Other lenders, including Pepper Money, have increased loan to value (LTV) for those with adverse credit.
Furlough no longer a significant barrier
With the furlough scheme now ended, lenders have been loosening criteria for those who have been on job support previously.
In the immediate aftermath of the scheme’s introduction, lenders were rightly cautious with those on furlough, but as the scheme has progressed and the economy has begun to bounce back, criteria has become less and less restrictive.
From being the most searched term in January, February and March, ‘furloughed workers’ dropped to the fourth most searched in April 2021 and hasn’t featured at all in the following months.
This reflects the loosening of lenders’ criteria, with a recent Intermediary Mortgage Lenders Association (IMLA) poll finding 21 per cent of lenders have amended their criteria to support borrowers who have relied on furlough income.
Outlook brightening for self-employed borrowers
The IMLA research also found that almost nine in ten lenders will now accept applications from self-employed borrowers, and a further 71 per cent said they would consider those with irregular incomes.
At Knowledge Bank, our criteria tracker data shows that brokers are working with a significant number of self-employed borrowers who have set up during the pandemic.
This rush of self-employed applicants may be as a result of lenders softening criteria for freelancers recently, with a number of lenders, including Natwest and Halifax, now accepting borrowers who have used the Self-Employed Income Support Scheme.
While lenders are certainly not bending over backwards to accommodate all clients, and nor do we expect them to, they are definitely loosening criteria for those adversely affected by the pandemic.
Whether previously on the furlough scheme, or recently established as self-employed, lenders are being more flexible. As the economic recovery continues, this confidence should continue to build, and criteria may be loosened further in the coming months.