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Brokers reveal the best lenders for the credit-impaired

ended 28. November 2023

With more and more people struggling financially and unable to pay all the bills, whether due to the pandemic or ongoing cost of living crisis, brokers have revealed who the best lenders are for borrowers with blips or more serious credit issues. The conclusion is certain smaller building and friendly societies, and specialist lenders, which take a much more manual approach to underwriting. The high street, in contrast, is often best avoided.

Paul Neal, director at Derby-based broker, First Choice Financial Services, said: “The credit-impaired market is going to be a rapidly growing one in the years ahead as the fallout from the cost of living crisis continues and higher mortgage rates hit household finances for six. More and more people are now struggling to keep up with their bills and mortgage repayments.”

David Sharpstone, director at Braintree-based independent mortgage broker, CIS Mortgage Advice, said borrowers with credit issues need to go to lenders with a more human approach: “It's vital that credit-impaired borrowers have access to lenders that take a more human response to underwriting and do not rely on a minimum internal or external credit score pass. I'm a big fan of Kensington lately. Their processing times are in line with many of the big high street lenders and have a great degree of flexibility with credit blips. The small building societies and friendly societies have a huge role to play in this market, too, in particular where there may be small yet historic credit blips. The gatekeeper systems used by bigger lenders would automatically decline these borrowers.”

Jamie Alexander, director at Alexander Southwell Mortgage Services, agreed: “Borrowers with impaired credit need to find lenders who adopt a more personal approach to underwriting, particularly those that don't depend on meeting a minimum internal or external credit score threshold. Lately, I've been impressed with Kent Reliance and Pepper Money. Their processing times are competitive with major high-street lenders, and they show considerable flexibility in dealing with credit inconsistencies.”

According to Darryl Dhoffer, director at Bedford-based The Mortgage Expert: “If we are looking purely at rates, then the likes of Loughborough Building Society and Buckinghamshire Building Society are in the vanguard of credit-impaired lenders. As for the Big Six, most will require six years of financial penance before they go anywhere near you. Meanwhile, the likes of Accord, Coventry BS and Leeds BS are shocking and will only look at an ex-IVA case 12 years after first registration. It's like they've thrown away the keys on borrowers.”

Dhoffer's views were echoed by Charles Breen, founder at Wellingborough-based Montgomery Financial: "Smaller lenders are ideal for the credit impaired as they take each application on a case-by-case basis. I once had a client who went to a Connells broker whose exact words were “ you're screwed” because he had one default. Three weeks later, by going with Melton Mowbray Building Society, we had the offer they needed for their dream house. That is the power of the smaller lenders."

Kylie-Ann Gatecliffe, director at Selby-based broker, KAG Financial, said: "We work with a lot of borrowers that have had credit issues, and there really are some fantastic lenders out there that want to help. Pepper, Bluestone and Vida stand out. These lenders have a human approach and you have direct contact with the underwriter to discuss the case, rather than it being a computer says no approach. This makes all the difference for these borrowers. Hardly any of them end up with credit issues on purpose. Most of it that we see is off the back of Covid, which these lenders appreciate was a one-off event and many borrowers haven't had a single credit issue since this happened. So I believe other lenders should be doing more to look after these people, rather than it being a blanket credit score decline approach."

Gindy Mathoon, senior mortgage broker at Derby-based Create Finance, also singled out Bluestone: “Bluestone mortgages have been flying the credit-impaired'flag post-pandemic. Though there were a limited number of lenders still lending in this space in 2020, Bluestone effectively did their utmost to ensure borrowers with credit issues still got funding to buy a home. Today they still sit very strong in the credit-impaired market. They have a human touch to all of their applications rather than letting a computer make a decision. This is most definitely what is needed with this type of transaction.”

The Bluestone praise continued through David White, chief operations officer at Simply Lending, who said: “Bluestone has been a prominent player in the specialist sector for for some time, but the emergence of competitors offering products for heavier adverse credit like Pepper, Vida, and The Mortgage Lender, is contributing to the reduction of these rates, which is undoubtedly a positive development.”

Bob Singh, founder at Uxbridge-based Chess Mortgages, concluded: “The mainstream lenders are willingly losing out in the adverse market stakes as they have little appetite or patience to deal with this sector. It’s no wonder the adverse credit lenders are lapping it up and making good margins. I’ve often felt the credit agencies have got lenders over a barrel, with many lenders having a complete reliance on credit scoring. Whilst many ignore minor items, many others won’t and will take a hard-nosed approach. Lenders need to live in the real world. We are in a cost-of-living crisis and should be offering solutions outside of Government-led solutions."

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13 responses from the Newspage community

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Darryl DhofferVerified
Founder at The Mortgage Geezer
If we are looking purely at rates, then the likes of Loughborough Building Society and Buckinghamshire Building Society are in the vanguard of credit-impaired lenders, with a Day 1 discharge IVA/DRO client, with a 30% deposit. Bluestone come into their own one-year discharged with a 25% deposit. Three years discharged and IVA still on file, again Loughborough BS and Cambridge BS lead the charge as they offer standard products with as low as 5% deposit, with no credit scoring. That's impressive so chapeau. As for the Big Six, most will require six years of financial penance before they go anywhere near you. Meanwhile, the likes of Accord, Coventry BS and Leeds BS are shocking and will only look at an ex-IVA case 12 years after first registration. It's like they've thrown away the keys on borrowers.
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Kylie-Ann GatecliffeVerified
Director at KAG Financial
We work with a lot of borrowers that have had credit issues, and there really are some fantastic lenders out there that want to help. In particular Pepper, Bluestone and Vida. These lenders have a human approach and you have direct contact with the underwriter to discuss the case, rather than it being a computer says no approach. This makes all the difference for these borrowers. Hardly any of them end up with credit issues on purpose. Most of it that we see is off the back of Covid, which these lenders appreciate was a one-off event and many borrowers haven't had a single credit issue since this happened. So I believe other lenders should be doing more to look after these people, rather than it being a blanket credit score decline approach.
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Charles Breen0
Founder at C B
Some of the smaller building societies even have lending panels who will meet once a week and go through the cases. You get to discuss and explain the client's circumstances and what caused them to get into the impaired financial situation in the first place. Building the case for your client in this way is absolutely brilliant as you can get them to look at the case in a more holistic way and they are wanting to find reasons to lend to your client rather than bigger lenders who are just looking for reasons not to lend. Smaller lenders are ideal for the credit impaired as they take each application on a case-by-case basis. I once had a client who went to a Connells broker whose exact words were “ you're screwed” because he had one default. Three weeks later, by going with Melton Mowbray Building Society, we had the offer they needed for their dream house. That is the power of the smaller lenders.
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Paul NealVerified
The credit-impaired market is going to be a rapidly growing one in the years ahead as the fallout from the cost of living crisis continues and higher mortgage rates hit household finances for six. More and more people are now struggling to keep up with their bills and mortgage repayments. It's therefore crucial that people speak to a broker who knows the way all lenders approach those with credit issues. Just because you have missed some payments doesn't automatically exclude you from the high street lenders, for example.
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Justin MoyVerified
Managing Director at EHF Mortgages
Specialist mortgage lenders offer a very wide base of products for those with any form of credit issues. Some will favour certain types of clients and situations. Those lenders with some form of cascading product selection are extremely useful, as they will match the product range to the credit file automatically. These include lenders such as Precise, The Mortgage Lender and Pepper Money. But this also shows the strength of the specialist mortgage broker, who will ask the right questions about a client's credit, understand the background of the situation, and speak with both specialist lenders and smaller building societies that manually underwrite cases. It will take AI an eternity to understand that.
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Bob SinghVerified
Founder at Chess Mortgages
The mainstream lenders are willingly losing out in the adverse market stakes as they have little appetite or patience to deal with this sector. It’s no wonder the adverse credit lenders are lapping it up and making good margins. I’ve often felt the credit agencies have got lenders over a barrel, with many lenders having a complete reliance on credit scoring. Whilst many ignore minor items, many others won’t and will take a hard-nosed approach. Lenders need to live in the real world. We are in a cost of living crisis and should be offering solutions outside of Government-led solutions.
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Ranald MitchellVerified
Director at bad credit mortgage specialists Charwin Mortgages
The mortgage market is relatively unforgiving when it comes to credit impairment, leaving a reasonable section of mortgage seekers underserved. Those lenders who do profess to deal with adverse do so on a light scale, or need a number of years elapsing since the "event". Then there is the problem of switching a customer who may be on a high street mortgage currently to a higher overall rate. The second charge market provides many more practical solutions for people with current problems, who need help now. This way, good or existing terms can be preserved, and the problems dealt with in isolation. Arrears, CCJs, defaults, missed payments, IVAs and bankruptcy can all be dealt with.
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Jamie AlexanderVerified
Mortgage Director at Alexander Southwell Mortgages
Many lenders who claim to handle adverse credit situations often do so only superficially or require several years to have passed since the credit issue occurred. Borrowers with impaired credit need to find lenders who adopt a more personal approach to underwriting, particularly those that don't depend on meeting a minimum internal or external credit score threshold. Realistically, borrowers with credit issues often start with lower scores. Lately, I've been impressed with Kent Reliance and Pepper Money: their processing times are competitive with major high-street lenders, and they show considerable flexibility in dealing with credit inconsistencies.
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Scott Taylor-Barr0
Principal Adviser at Barnsdale Financial Management
Credit impaired is a very broad term and different lenders will look at applicants very differently. Some specialise in this area and make their living by lending to those with Debt Management Plans, recent IVAs or bankruptcies, or large and recent County Court Judgments or defaults. These tend to be lenders the public won't have heard of, such as Pepper Money, Precise Mortgages, Aldermore, Foundation Home Loans and the like. However, it's an area that the more mainstream lenders have been slowly moving towards, too. Metro Bank has a range of products for those with less severe historic credit issues and others, such as Skipton, will ignore some minor credit issues on their standard range of products as long as any issues show as fully settled on the client's credit file. The key is for people not to assume that a poor credit score is an automatic barrier to getting a mortgage. Speak to a mortgage broker, you might be surprised.
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James Bull0
Mortgage Broker at JB Mortgages
Adverse credit covers a wide range of scenarios so each case needs to be taken on its own merits. And each lender has a wide range of criteria around what they will and won't accept. The first step is to get a copy of a client's credit report, find out exactly what the problem is, and then research the lenders on this basis. When this process is followed correctly there should not be one lender used more than others, and I usually find a wide range of lenders can be used depending on the severity of the adverse.
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Dan Osman0
Head of Later Life Lending (Age 55+) at UK Moneyman
This is a sector of the market where older borrowers, assuming they have enough equity, can be at an advantage. Many lifetime mortgage lenders have a very relaxed approach to adverse credit, which can be a real benefit, especially in situations where one partner has died leaving their spouse with a much smaller income and unable to meet the rising costs of living. Care needs to be taken as any adverse credit history in a potential older borrower can indicate heightened vulnerability but with extra time taken and a robust consideration of the alternatives available this form of lending can offer a lifeline to those who may feel they are out of options. It is unfortunate that interest serviced/repayment mortgages for older borrowers are not generally as flexible, however some of the smaller building societies as mentioned above can be flexible on age as well as credit impairment.
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Gary Bush0
Financial Adviser at MortgageShop.com
Impaired credit has always been a specialist area for us, even in the days when lenders didn't offer terms. As an independent financial advice firm it's our job to know from the 100+ lenders operating in the UK where the tolerance levels are for banks and building societies to gain acceptance to missed payments, defaults, County Court Judgments, and mortgage arrears. Our systems hold the details of what is the adverse sweet spot for lenders and we use this knowledge to secure the best rates for the circumstances.
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David White0
Chief Operations Officer at Simply Lending
An increasing number of lenders are now providing financial products to consumers who have previously been involved in an Individual Voluntary Arrangement (IVA) or similar agreements. While it's regrettable that such measures are needed, this trend is introducing beneficial competition into a market segment typically characterised by higher rates. Bluestone has been a prominent player in the specialist sector for for some time, but the emergence of competitors offering products for heavier adverse credit like Pepper, Vida, and The Mortgage Lender, is contributing to the reduction of these rates, which is undoubtedly a positive development.