Comment: It’s time to talk about money
In recent years we have seen a lot of progress in society over discussing topics previously considered taboo. Mental illness, for example, was once a subject that people found difficult to talk about and often endured in silence, but it is now much easier to seek advice through increased awareness and open discussion.
However, we haven’t made progress on everything. Money is still a topic that people are reluctant to discuss, particularly when it comes to missed payments and adverse credit. The market is awash with high-level data on the number of county court judgments and defaults, and the total value of outstanding debt.
Pepper strongly believes that this should not be the case, so we’ve commissioned extensive research to shed light on the world of adverse credit, particularly adverse credit mortgages, and to encourage greater understanding and more open discussion.
Researching the figures
We partnered with YouGov to carry out a survey of a total of 4,163 British adults to find out the truth about how many people may be deemed to have adverse credit, how many of them are planning to buy a property and how their credit record influences their plans.
According to the research, 15 per cent of participants either had missed payments on credit commitments; had CCJs, defaults, or secured or unsecured arrears registered on their credit file; or had entered a debt management plan in the past three years. This means we can estimate the number of people considered to have adverse credit at 7.86 million, based on a total UK adult population of 52.4 million, according to the Office for National Statistics.
Of those 7.86 million people, 16 per cent said they intended to purchase a property to live in or let out in the next 12 months. This equates to 1.26 million potential mortgage customers with adverse credit who may need support from a broker in the next year alone.
Adverse credit is most common among people at the prime age to be homebuyers and remortgagors. Of the individuals who have experienced adverse credit in the past three years, the majority – 45 per cent – are aged between 35 and 44. This compares to 35 per cent who are aged between 18 and 34, and 20 per cent who are aged 55 and over.
It is not just the less affluent who pick up adverse credit on their record. A total of 63 per cent of adults who have experienced adverse credit in the past three years and are planning to buy a property in the next 12 months have a higher income.
The potential market for adverse credit mortgages may be large yet there are hurdles in the way of reaching these customers. Consumer understanding is still limited and 93 per cent of people are unaware they can obtain a mortgage with a CCJ registered as recently as six months ago.
Where are people with adverse credit going for advice? The research found that awareness of the existence of mortgage brokers is relatively good; four in 10 people with adverse credit who are looking to buy a property in the next 12 months say they would speak to a broker. However, a greater number (44 per cent) say they would go directly to their bank, and even more (58 per cent) would seek advice from family and friends.
This is concerning, as there remains a lot of misinformation about adverse credit. For example, 93 per cent of people do not know that just one missed credit payment could lead to a CCJ, and 66 per cent are unaware that there is no minimum amount of debt required to be issued with a CCJ.
To conclude, there are potentially 1.26 million people who have experienced adverse credit in the past three years who will be in need of a mortgage in the next 12 months. We have a lot of work to do in converting the potential demand for adverse credit mortgages into actual enquiries, especially in getting our message and proposition out to the six in 10 people who said they would not speak to a broker.
If we are able to encourage increased awareness and open discussion about credit problems and adverse credit, we can make it easier for people to seek advice about the options they have for their finances. Ultimately, this will benefit everyone.
Paul Adams, sales director, Pepper Money