Ashley Pearson, Head of Intermediaries at Loughborough Building Society
Building a detailed client profile is an important part of the mortgage process. The more information the lender has, the more successful and straightforward the application will be. This is especially true when it comes to referring clients with a history of adverse credit, where soft facts are just as important as hard facts in determining the client’s borrowing needs.
A good referral should always include as much information as possible as this gives the lender greater insight into the circumstances surrounding the client’s credit profile. This is particularly important in situations where the client has built up a significant level of debt, taken out an IVA or debt management plan.
Supplying as much detail as possible at the outset will also help to prevent delays to the application process and avoid a series of back-and-forth emails and phone calls between the underwriter and the mortgage broker.
We often receive referrals from brokers where a client with a history of adverse credit is looking to secure a mortgage. The best referrals include soft facts that help to bring the client’s story to life and highlight how their circumstances have changed over time rather than solely focusing on the financial details.
A good example of the level of detail required was evident in a recent case where a husband and wife were looking to purchase a new property following the completion of an IVA.
The clients had £42,700.00 in unsecured debt and had entered an IVA in 2018 after the husband was made redundant after three years with his employer and only received a small pay out. Since then, all the payments under the IVA and the mortgage held on their existing property were fully maintained.
The clients had also taken out a credit card to rebuild their credit profile and were seeking to increase their borrowing amount from £90,000 to £150,000 to purchase a new home.
Although all the basic facts and figures regarding the client’s finances were included, very little information regarding the finer details of the clients’ situation before, during or after the IVA was taken out, were supplied.
For example, although it was clear that the client was made redundant, there was no information about whether the applicant found another job. This information is crucial.
Similarly, as it’s a joint application, the client’s wife’s employment history details should also be included and if she wasn’t employed, then an explanation for this is also needed.
Including details such as the fact that the client was earning over £50,000 in his role before being made redundant is important in helping the lender understand the circumstances that led to the IVA, particularly as he was then unemployed for four months before securing a position paying £25,000.
While this helped to cover the mortgage payments on their existing property, the couple continued to struggle financially, prompting the wife to return to work on a part-time basis while also caring for two small children.
Delving into the reason behind the debt is crucial as it helps to eliminate lender concerns about the clients’ propensity towards debt.
One of the main reasons for the high level of debt was due to a £25,000 loan to cover the cost of a new kitchen, while credit cards were used to pay for Christmas, holidays and emergency expenses.
Although the applicants admitted to overspending in the years prior to taking out the IVA, the significant drop in income coupled with the wife staying home to look after young children severely impacted their finances.
However, five years after taking out the IVA, the couple were both working full-time and earning a combined salary of £53,000 per year. They have also been saving to buy a larger property as they need more space now that their children are older and in full time education.
Providing a detailed account of their story in the five years since taking out the IVA helps to create a clear and concise picture of the clients’ financial background. It also helps the lender understand why they are applying for a bigger mortgage.
Whilst this is a complex set of scenarios, it does help outline how speaking to a specialist lender about what information is required when referring clients with a history of adverse credit can help brokers achieve a more streamlined application process and enable them to service the needs of their clients quickly and more effectively.