April is particularly painful for many of us this year, courtesy of the range of different household bills being hiked.
And few are quite as eye-watering as water bills, which have jumped by an average of 26%. That equates to more than £10 a month extra on average, though the regional variances mean that some people will be facing even stiffer bill increases.
It’s yet another hit to the household budget, and off the back of a few years which have been particularly testing for any family trying to make the sums add up. It also brings into focus a challenge that brokers are increasingly having to help their clients navigate - the legacy of rising bills, and how a short-term financial wobble can lead to long-term consequences.
After all, the Consumer Council for Water reckons that around 2.5 million people are in debt to their water company, no small figure. For some households, this will be part of a wider pattern of financial strain. But for many others, the issue is more isolated. It was a temporary setback, now resolved, but one that has left a mark on their credit profile.
That mark can be enough to push them out of the prime mortgage category, even if everything else about their financial position is in good shape.
A missed payment shouldn’t mean missed opportunities
Over the past few years, we’ve seen a steady increase in household bills across the board, from energy and water to Council Tax and food. For many borrowers, just keeping on top of everyday outgoings has become a juggling act.
The result is that more people have experienced occasional missed payments. And while the underlying issue may have been temporary, the impact can be anything but.
Brokers tell us they’re seeing more clients with these kinds of credit blips - borrowers who are perfectly capable of managing a mortgage, but who no longer meet the criteria for a mainstream product.
That’s why it’s so important for lenders to step up and deliver a worthwhile near prime proposition.
What near prime should look like
When Atom Bank entered the near prime space a couple of years ago, it was driven by the fact that there were few options from mainstream lenders. If your client had a missed payment on their record, the only route was to go to a specialist lender.
Since then we have adapted our proposition, as it’s become clear what near prime borrowers really need. For example, it’s vital that lenders in this space have realistic caps for registered unsatisfied defaults, particularly around utility bills. And there is also a clear need for near prime lending at higher LTVs, so that a wider group of borrowers are able to access the funding they need for a purchase or refinance.
It’s not enough to simply recognise that this is a cohort of borrowers who need support; you also need to dig into what the support should look like, take broker feedback on board, and adapt your proposition so it genuinely meets the borrowers’ needs.
That we have consistently set internal records for near prime activity levels suggests we are doing something right.
Near prime today, prime tomorrow
One of the most overlooked aspects of near prime lending is that it’s not supposed to be a permanent status. With the right support - and assuming their circumstances improve - these borrowers should have a path back to prime.
This isn’t something open to specialist lenders, who only operate in the near prime space. But for lenders like Atom Bank, who work with both prime and near prime borrowers, it’s a crucial element to think about. How can we help this borrower, not just today, but in the future? How can we help them regain prime status?
Not viewing the borrower as automatically ‘near prime’ is a start. At Atom Bank, we regularly monitor the borrower’s financial position throughout the term, so that when their deal comes to an end we are in a position to offer them a prime rate rather than a near prime one, should they now meet the criteria. Crucially this is an automated process, cutting out the need for re-underwriting or any additional work for the broker.
Making that process as easy and as automated as possible matters, because it helps borrowers to keep moving forward, rather than getting stuck on higher rates simply because of something that happened years ago.
Working with the right lenders
As more households come under pressure from the likes of water bill increases, brokers are going to play a pivotal role in identifying the lenders that can genuinely support those clients - not just today, but over the long term.
And lenders are going to have to adapt, to ensure that their products don’t just deliver for those with perfect credit records, but also those with the odd black mark along the way.
