UK Buy to let mortgage market update: missed payments on credit cards, loans and utility bills and looking to get a buy to let mortgage.
This “missed payments on credit cards, loans and utility bills when trying to get a buy to let mortgage” article is part of a mini-series covering the emerging trends in the UK Buy to Let mortgage market. In it we discuss how missed payments might play out in the coming months, and provides possible solutions to combat the challenges that lie ahead.
Before I launch into this article I wanted to point out that when I refer to “missed payments” this is poorly conducted credit which will have a “Status” of 1 to 6 lodged against it on your credit report. This is before a “default” is registered. Although these demerits stay on your credit file as a general rule Buy-to-Let Lenders operating out of the top tier on price are fairly tolerant to occurrences over three years ago.
BACKGROUND TO MISSED PAYMENTS ON CREDIT CARDS, LOANS AND UTILITY BILLS WHEN TRYING TO GET A BUY TO LET MORTGAGE
It is fair to say that after the credit crunch in 2008 it took a few years before the credit impaired “adverse” market re-emerge. The tolerance to missed payments on credit cards, loans and utility bills then continued to grow until about 18 months ago when the breaks came on again and in some cases tightened. Certain major Buy-to-let Lenders; most notably super buy-to-let juggernaut BM Solutions, with new owners Lloyds Banking Group, decided not to partake in rejoining this adverse credit part of the market and the extremes of adverse acceptance prior to 2008 have not been repeated anywhere.
Furthermore, the current Buy-to-Let Lenders that consider missed payments on credit cards, loans and utility bills want them to be bought up-to-date ahead of application. Behind the scenes, their internal credit scores are likely to be penal for missed payments in the last 3 months.
So why did the breaks come on 18 months ago? I’m not a Buy-to-Let Lender so can only speculate but nevertheless here are my thoughts which Centre around world events and market conditions:
- Pandemic – Financially vulnerable customers exposed.
This major health scare pulled down the veil outing customers who had little funds in reserve who would pose a greater risk to lending.
- Pandemic – Greater concentration on existing customers
There was an overarching directive from Government to offer “payment breaks” to struggling existing customers. This was an administrative nightmare and costly burden to Buy-to-Let Lenders so why go looking to attract more customers that have a track record of non-payment.
- Pandemic – Non-communicative customers
Missed payments on credit reports may have avoided being registered during this period by regular dialogue with the providers as there was a heightened level of empathy and understanding – and one thing more than anything that gets up the noses of Buy-to-Let Lenders is the “burying of heads in the sand” mentality.
- Pandemic – System manipulation
When markets change suddenly there are unfortunately people that look to use the “window of opportunity” to exploit the situation until new rules are put in place. The Buy-to-Let market was also a victim. The mortgage payment breaks were not registered so there were instances of Buy-to-Let Lender hopping (sometimes multiple times) when the arrears mounted up. Some people decided the best way to cope was to take it in turns with their credit cards, loans and utility bills – missing one the month and another the next. This rotative spreading kept the “Statuses” low on the individual unsecured items and therefore passed through some Buy-to-Let Lenders’ credit scores as a result.
- War in Ukraine
This has reduced the funding options available to Buy-to-Let Lenders with sanctions closing certain avenues of financing.
CURRENT SOLUTIONS FOR MISSED PAYMENTS ON CREDIT CARDS, LOANS AND UTILITY BILLS
Choose your Buy-to-Let Broker wisely. There are some that are tied to a finite panel of Buy-to-Let Lenders or sets of Products. Niche Advice is a “whole of market” Broker and can advise on regulated and unregulated mortgages.
As such at the time of writing we can offer the following for Buy to Let products:
• Up to Status “6” on unsecured debts such as credit cards, utility bills and loans provided the credit agencies show Status “0” for 1 to 3 months before applying up to 80% loan-to-value.
• Up to Status “2” on unsecured debts such as credit cards, utility bills and loans provided the credit agencies show Status “0” for 1 to 3 months before applying up to 85% loan-to-value.
• Lenders who ignore defaults on communications agreements i.e. phone and mobile phone bills.
BRIGHTER FUTURE FOR MISSED PAYMENTS ON CREDIT CARDS, LOANS AND UTILITY BILLS.
The Lending Margins are wider than over a decade so prove attractive for new entrances into the market or those with a lending presence but are looking to diversify. In fact two such Buy-to-Let Lenders United Trust and West One who have lent in the UK to bridging and second charge borrowers are now pushing for first charge buy-to-let businesses with aggressive lending policies including acceptance of unsecured missed payments.
The need to compete for the “Specialist” Buy-to-Let Lenders is becoming urgent as their rental assessments on pay rate are becoming irrelevant with the rate rises. So the ability to attract missed payments could become needed.
I can see the stepping stone in the flight towards greater acceptance in missed payments in the following order of preference for the Buy-to-Let Lenders:
The providers have historically looked to register these misdemeanours quicker than their counterparts from other sectors.
Landlords that include these in their rent will be watching this area of mortgage development closely. There is also speculation that there could be a wave of protest non-payment in this sector as a sign of solidarity in the face of the “cost of living crisis” in a similar vein to the poll tax revolt in the early 90s. Expected power cuts later in the year could be the final straw. If there are missed payments on mass expect Buy-to-Let Lenders to show greater discretion
Another political “hot potato”: is raw sewage dumped by the indigenous companies on our shorelines in the wake of Brexit. This is fast developing into a “public outcry” and following it down the path to correction could well evoke a rise in our water bills. And, the increased chance of default in this area.
To some a “way of living”, particularly with the extra protection for online shopping. To others signs of financial difficulty. Either way the Buy-to-Let Lenders credit scores pick up these missed payments and make an automated decision. One way of managing this more effectively could be a break in proceedings to allow a greater degree of human intervention and listen to the reasons behind the issue rather than the “computer says no mentality”.
This will in my opinion be one of the last areas to relax unless the Buy-to-Let Lenders lump them into a “one size fits all” approach to unsecured debt for product simplification benefits.
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