Bluestone News

Why coronavirus will lead to more unlendables


Covid-19 has impacted the finances of so many, whether through unemployment, reduced working hours or the furlough scheme. While the government has offered temporary financial support to those affected, the true cost of the pandemic is still unfolding and will continue to do so for some months.  

We just need to look at the take-up of the government schemes to see the financial disruption Covid-19 has caused. At the height of the furlough scheme in May last year, some 8.9 million people in the UK were furloughed. Meanwhile, 2.7 million self-employed workers claimed a grant through the government’s first Self-Employment Income Support Scheme (SEISS) and 2.4 million through its second tranche. Added to this is more than four million borrowers who have been granted payment deferrals across mortgages, credit cards and personal loans since the start of the pandemic.

Another likely offshoot of the pandemic and something that we’re already starting to see at Bluestone is an increase in missed payments against unsecured credit.

The financial shock of the pandemic has unsurprisingly caused some borrowers to fall behind on these often-smaller payments, such as credit card and telephone bills. While some borrowers’ financial struggles may be short-lived, they may have a lasting impact on their ability to get a mortgage from a high street lender. Even a couple of missed payments on a credit card can be enough of a red flag for some mainstream lenders to turn a borrower away. 

With figures from The Money Charity showing 29% of self-employed workers fell behind on household or business bills in the three months to October 2020, this could represent a significant problem. As well as those with minor defaults, we are also likely to start to see borrowers with heavier adverse credit during the second half of 2021, such as missed mortgage payments and county court judgement (CCJs), also as a result of the economic impact of the pandemic.    

Even with some defaults, however, this does not always mean the borrower cannot secure a mortgage. Such borrowers may have temporarily fallen behind with payments while awaiting their government grant, or while they looked for new work, and are now financially secure again.

Nevertheless, we expect self-employed borrowers and those with credit blips to be some of the most adversely affected when it comes to having their mortgage needs met by the high street.  

At Bluestone Mortgages, we take a personalised, holistic approach to underwriting, without basing our decisions on a client’s arbitrary credit score. Instead, we look at each case on an individual basis and take time to understand your client’s circumstances to find the best solution for their needs.

As we look ahead, there is still much unknown, but one thing seems almost certain: the needs of a lot of mortgage borrowers are going to become more complex and brokers are going see a rise in enquiries from customers with complex credit and non-traditional income streams. 

At Bluestone, we refer to such borrowers as the ‘unlendables’, not because there are no options available to them but because this is often how they can be perceived - by themselves and some high street lenders. 

Since the start of the pandemic, there has been a lot of talk in the media about how mortgage borrowers now have fewer options. This is not necessarily true. 

There is a considerable complex credit mortgage market open to those with less-than-perfect credit profiles and many lenders in this area are open for business to help you find a solution for your client.