Focus on financial inclusion after COVID
Paul Adams is sales director at Pepper Money
The COVID-19 pandemic has united the country in many ways. We’ve all shared the experience of clapping for carers, socialising over Zoom calls, and going months without a haircut. But it has also created division.
As the saying goes, everybody is going through the same storm, but we’re not all in the same boat. Whereas the property market has enjoyed a period of high activity, for example, hospitality has remained largely closed. Some business owners have had access to grants, whereas others have fallen through the net, and some households have actually increased their savings as a result of lockdown whereas others have experienced a significant drop in income.
According to research by Legal & General Mortgage Club, UK borrowers who have seen their income fall due to the COVID-19 crisis may soon be paying thousands of pounds more in monthly repayments as 32% of borrowers consider staying on their lender’s standard variable rate (SVR) once their existing mortgage product expires.
Legal & General says that people who have experienced a drop income could be less likely to look into remortgaging because of their changed circumstances, and this could put a £2,500 annual increase on their repayments, impacting their finances which may already be stretched.
In addition, the research found that 50% of homeowners are concerned that their decision to take a payment ‘holiday’ will affect their future ability to borrow.
At Pepper Money, we are currently in the process of carrying out research for the latest edition of our Adverse Credit Study. In the previous research, last autumn, we found that the finances of customers with adverse credit were more negatively impacted by COVID-19 than those with a clean credit history, and initial feedback from the current research indicates that this trend has continued.
The research found that people with adverse credit were more likely to have experienced a drop in income and increased the amount of debt they had as a direct result of COVID-19, and that they were more pessimistic about their chance of getting a mortgage in the future.
This presents mortgage advisers with a real opportunity to re-engage their customers and make a difference. The availability of mortgages for people with a diverse set of circumstances, including recent missed credit payments, is well known within our industry, but it is less known with our customers. If they are not aware of the opportunities available to them, they could find themselves in a worse financial position as a result.
It’s more important than ever that we ensure customers are not disenfranchised from mortgage lending because of their credit history, but that they are given a fair opportunity to access the market based on their current circumstances and future ability to make payments. We must focus on financial inclusion.
Professional advice is the key to achieving this and brokers have an important role to play in helping people realise their objectives and repair their finances as we emerge from the pandemic.