Since Covid-19 hit early last year, it has turned our world upside down. For some people it has been a positive – more time with family, less time commuting or even furlough.
For others however, it has caused all sorts of problems – less pay, the need for payment holidays and potentially even late or missed payments. We do a lot of work with people who have had credit issues and we expect that Covid will result in an increase in customers with credit issues over the next couple of years. We therefore thought it would be helpful to make a post on it if you find yourself in this situation.
How are lenders looking at this?
We have not heard anything from lenders altering how they assess applicants with credit problems caused by Covid and furlough. In all honesty, we do not expect lenders to make any changes or exceptions.
The high street lenders typically credit score your applications and I expect this will carry on as normal as they are too big to look at applications on an individual basis. They also do not really need to take on those additional risks.
What about non high street lenders?
This is the part of the market we deal a lot with. These lenders typically charge higher rates (anywhere from around 0.25% more up to around 5% more). But they are geared up to either accept adverse as standard or to take a view on applicants.
These lenders do not credit score, they assess your application as a whole and on an individual basis. Usually you would need at least 6-12 months clear in order to show the rough patch is now behind you and as that becomes more and more historic it will of course increase your options and in turn the rates available would usually start to drop. .
Bad credit caused by covid
The big question then is “Will you be able to get a Mortgage with adverse caused due to corona virus pandemic?” The answer to this is that you will be treated the same way as anyone else who has adverse. However, on the upside where the underwriter asks about why and how your adverse came about, we have a very simple explanation. It would presumably be down to redundancy or a reduction in pay or possibly illness caused by covid.
Those are reasons as to why a lot of adverse comes about and so it very much can be overcome. The biggest question is more about what the rates will look like. The other big question is what size deposit you will need. Those questions can only be answered after we have reviewed your credit report. Defaults for example will look worse than late payments and bankruptcy would look worse than both.
The devil is in the detail, so it is always worth a conversation. Our aim is to give you an indication of what is available at the first opportunity. There are times we may not be able to do that and we may look to give you a best and worst case scenario. This can happen where you are borderline high street but it will depend on how your application scores.
Summary
In short, we do not expect lenders to make exceptions or relax their rules due to covid. What we do expect is that you will be treated in the same way as anyone else who has adverse credit and that can be overcome a lot of the time. It does not neccesarily mean higher rates and even where it does, it does not always mean much higher. Lets have a chat and see what we can do.