There are some things about our mortgage market that work really well – and other things that struggle to work at all. The way that people with impaired credit are treated is something that really does not work well and it is time that this changed.
For much of the market, there is a ‘one size fits all’ approach – only it doesn’t fit all. Off the shelf ‘vanilla’ products fit certain people but approximately one in four people are declined for a mainstream mortgage. Of those there is a significant proportion who have suffered credit problems in the past.
There are a whole variety of reasons why someone may have had credit problems, some of their own making, some due to circumstances largely out of their control. When it comes to getting a mortgage however, too often all people are treated the same.
It is time that this changed. What we need to do is take a leaf out of the book of life assurers. We need to look at mortgages for people whose circumstances fall outside of the norm in the same way that someone would be looked at were they to apply for life assurance.
If you apply for life assurance you get looked at as an individual. On your application you get asked lifestyle questions; they then do a health test looking at your age, weight, BMI and other risk factors before deciding whether or not you qualify for the product and what the risk weighting is going to be.
While I’m not suggesting that we start weighing people before offering them a mortgage, I do think that, especially for people with an imperfect credit history, they should be treated more as individuals, looked at for the risk they actually present.
While some of the newer lenders have started to look at what situation people are in now, rather than just using the past, it is time that this went much further. While this level of detail may make the mortgages slightly more expensive, better this than whole swathes of people are written off and unable to get a mortgage at all.
There has to be room to treat people as individuals. It is clear that it is possible to do this, just the mortgage industry has not yet fully adopted this approach. So maybe it is time that we worked more closely with our life assurance colleagues to find out how their underwriting is done and adopt the techniques that work well there that we could usefully use.
It really is time that people started being treated as individuals. It is right that each person is judged as an individual. This does not mean that everybody should be able to get a mortgage; of course those who have been in debt and are still not capable of managing their money should not be lent any more, but it is not right that people who now have their act together are written off and not allowed to buy their own home if they are more than capable of making the monthly payments.