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People with complex needs held back by limited options

While progress has been made, the self-employed and certain other borrowers still struggle to find the right mortgage, writes Guy Anker

The mortgage market now provides more options for borrowers with complex needs, but some brokers insist it has not gone far enough.

Complaints still sound that clients who are self-employed, have irregular income, have had credit blips or who want to borrow against certain properties still face unnecessary hurdles. Big banks bear much of the criticism, as many can only turn to smaller building societies.

Yet there has been progress. A high-profile recent example was the Financial Conduct Authority’s announcement last month that it is likely to allow looser checks on tens of thousands of ‘mortgage prisoners’ who have struggled to move to a cheaper deal despite having kept up repayments, as they fail current affordability assessments.

There has also been a two-and-a-half-fold rise in the number of mortgages available specifically for the self-employed over the past year.

New technology should eventually make it easier for clients to do their own product research and check their eligibility chances but such platforms are still in their infancy.

Perhaps the most typical complexity brokers have to deal with surrounds applicants’ income, whether they are self-employed, a contractor or have irregular income.

Rose Capital Partners managing director Richard Campo says: “We have a long way to go as we still struggle to find competitive pricing for clients with complex incomes. Big lenders still struggle as more clients turn self-employed, or have multiple income streams.”

Campo says a broker can still find a home for such clients, though it often means turning to smaller lenders.

“Harpenden, Family Building Society, Digital Mortgages by Atom Bank really understand complex cases,” he says. “But it is a shame mainstream lenders cannot accommodate them, often as the ‘computer says no’. The notable exception is Barclays.”

Cherry Mortgage & Finance director Matthew Fleming-Duffy adds: “Smaller building societies and new entrants offer more options but it is hard for clients with complex needs. We need a rethink how we can serve them.”

Self-employed workers, in particular, are a growing force. The Office for National Statistics says that the number of such people jumped from 3.3 million in 2001 to 4.8 million in 2017.

Anyone who is self-employed often needs at least two years’ accounts to prove their income, which rules out most with very young businesses.

While they can still get a standard mortgage, there are a growing number of specialist home loans, but only from smaller building societies. Figures in April from data analyst firm Moneyfacts showed there were 66 such products compared to 25 a year earlier.

While in percentage terms that represents big growth, the number is still low overall.

Habito chief strategy officer Martijn Van Der Heijden says: “Progress in new products or lending criteria for the self-employed has been slow and issues remain around proving average earnings and how secure that income is. “They are in the slow queue. Products they apply for often remain the same as for those paid via PAYE, but are harder to get.”

Income complexity also extends to contract workers. Again, there are a few specialist products for them, with Moneyfacts listing 11 such deals compared to 15 a year ago, all from smaller building societies.

Another issue is for people with credit blips or whose income may have been enough a few years ago but who now fail stricter affordability checks. Of course, the help for ‘mortgage prisoners’ will aid some of the latter group.

Sub-prime mortgages, that may have helped people with particularly patchy credit histories in the past, were largely killed off following the credit crisis of the last decade, which Campo labels “a good thing”.

Someone with a missed payment here and there can still get a mortgage but their choice becomes more limited.

In contrast, one type of mortgage which has re-emerged is the retirement interest-only mortgage, part of a trend that has seen more deals available to older clients, with some lenders willing to allow people to keep on paying a home loan into their 100s – again, such deals mainly come from smaller lenders.

The type of property can also cause complexity for clients as some lenders do not lend on high rises, homes above commercial premises, ex-local authority flats and more. There can also be tougher criteria for anyone buying a new build.

Some products have been developed over recent years for specific property types such as Help to Buy for new builds and the few right to buy products around – Moneyfacts lists 69, compared to 25 a year earlier. Again, they are from smaller building societies.

Right now, clients with a non-standard property, with complex income or a patchy credit history can usually only find the right lender by speaking to a broker.

However, some online portals from brokers or third parties say they could eventually help more borrowers identify a product online even where complexity exists, via eligibility tools and or computer-generated advice. One method under construction is to ask detailed questions about a client’s home or intended home, and match it to lenders’ property criteria to rule out some lenders.

Another type being developed is to mimic eligibility tools that are common in the credit card and loans market. These do a soft search of an applicant’s credit file to assess their acceptance chances, which in particular could help people with credit blips identify lenders that may take them.

If an online portal can marry property and financial eligibility, it could provide significant disruption.

The likes of online portal MortgageGym and price comparison site Moneysupermarket plan to launch full eligibility functions.

Mortgage Gym already has an embryonic eligibility journey and says that this will grow in the summer.

The big challenge for online platforms is that mortgages are complex and some brokers question whether technology can truly replace a human’s ability to dig into the important nuances.

Fleming-Duffy says: “Until we see quantum computing and artificial intelligence come of age, automation will fall short for complex requirements.”

While the embryonic forms of eligibility are in place, most online platforms are simply a means to gather data before handing to a human adviser.

Two brokers with more advanced online application systems, Habito and London & Country, operate this platform-to-broker model.

L&C expects humans to be involved for many more years in complex cases. Right now when it identifies complexity, such as a self-employed applicant with one year’s accounts, it encourages them early on to speak to a broker.

L&C director Hollingworth says: “The greater the complexity, the harder it is for technology to give the right nuance.

“Technology will help over time in these cases but there is the risk of applying black and white criteria when many lenders use grey. So the benefit of a broker will continue where they know a lender may be flexible.”

Whatever happens with technology, whether complex clients can actually get a mortgage ultimately comes down to what lenders offer and what help is given by the government or regulators. Many brokers appear optimistic on this front.

Fleming-Duffy says: “I have a positive outlook and believe these borrowers will benefit from more tailored lending in the coming years.”

Campo adds: “Lending is getting more complex, but most lenders are showing a willingness to adapt.

“I am optimistic but I urge clients with complex situations to talk to a human broker.”



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