Thousands of people who have put their financial problems behind them find themselves locked out of the housing market, despite a vast improvement in their finances and concrete evidence that they are once again able to meet a repayment plan and live on a fixed budget.
But things are starting to change. In recent months there has been a transformation in the Scottish lending market, one we’re predicting could help a fifth more Scots put their debt problems firmly behind them and turn home ownership into a reality.
The reason for this is the arrival, north of the border, of a raft of new mortgage lenders that assess borrowers in a different way to a traditional bank or building society. These lenders don’t rely on computer-generated credit scores, which invariably result in instant rejections for people with historical credit issues, but look at each application manually. It’s a key difference that people with poor credit histories have been crying out for.
Magellan Homeloans is the latest lender to set up shop in Scotland built on the philosophy that sensible budgeting can be proved by people who were once in debt, and should be rewarded — even if their credit score is still a little bruised.
This isn’t a return to the sub-prime, irresponsible lending of the past, but a new way of lending that drills down into the detail of personal circumstances rather than relying on an algorithm that spits out a black and white response.It is affordability-based but applies a bit of common sense. For example, even prospective borrowers who have emerged from debt management programmes, bankruptcy or Protected Trust Deeds as little as 12 months previously can be considered for a mortgage, with rates starting from 2.99 per cent.
The rationale is that debt management solutions, such as Protected Trust Deeds, highlight something fundamental that must be taken into account when underwriting a loan: these would-be borrowers can meet set repayments. That, after all, is part of the intention of these solutions, as they play a role in helping people back into good habits and put them in a position where they are ready to re-enter the regular banking and borrowing system.
Given that 2,500 people were discharged from a Protected Trust Deed between July and September, according to Scotland’s insolvency service, the Accountant In Bankruptcy, the arrival of these lenders offers hope to a significant demographic.
We believe the arrival of these lenders in Scotland could see the number of people buying property rise as much as 20 per cent next year, and herald a new era of financial inclusion.
- Peter Dean, chairman and financial and personal debt solutions expert, Your Mortgage Expert