In My Opinion: Sub-prime 2 – a new dawn


Borrowers with credit blips represent a great opportunity because they really need – and value – professional advice

Just when you thought it was safe to go back into the water, sub-prime is back.

Well, that is the headline some commentators want you to believe. The truth is the market never disappeared – but it has changed dramatically in the 20 years since it began in the UK.

In the beginning, we saw lots of borrowers still recovering from the hefty interest rate hikes of the early 1990s; mortgage arrears were at their highest level. Other people were struggling to obtain a mortgage.

So a new breed of specialist lending began and the ensuing decade saw more lenders enter a growing sector – until the credit crunch hit and forced many to exit.

Borrowers with mortgage arrears are synonymous with the ‘adverse credit’ lending of the past. But today’s borrower is different.

Arrears have fallen drastically in the years since the trough of the market in 2008, due to their strong correlation with a low interest rate environment and improving economic conditions.

That said, recent research we undertook found that 30 per cent of advisers had experienced an increase in demand from clients with blips on their credit rating.

I prefer to call these ‘credit blips’ rather than ‘adverse credit’ because the environment is somewhat different today. Blips generally come as a result of a past occurrence from which the client has recovered. Such occurrences could be divorce, redundancy or long-term illness.

We have also seen a rising trend of self-employment. Running your own business is tough, particularly in the early years, and can sometimes result in a blip too. Simply forgetting to pay a bill could land you with a default or CCJ.

Change of focus

So the big difference with the market today is that it is centred on clients who have experienced a one-off event that led to a blip, rather than a number of recurring events that led to greater financial difficulty overall.

Some say the increase in the number of lenders willing to offer mortgages to borrowers with blips is an ominous development, which can lead only to the lowering of credit standards and a return to the bad practices of the past. But I disagree.

More lenders will result in greater choice and more competitive deals for consumers. The Financial Conduct Authority has made it clear it is keeping a close eye on developments, so lenders will be mindful of the need to maintain high underwriting standards.

Borrowers with credit blips represent a great opportunity for brokers because they really need, and value, professional advice.

The market is not homogenous; there are clients with varying income levels, ages and blips. What unites them is having an individual story behind their need.

There must be a range of lenders to cater for these needs, otherwise the mortgage market will be held back.

It is safe for advisers to dip more than a toe into the water…

Jeff Knight is head of marketing at Pepper Homeloans