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18 January 2017

Blog - Who wants to be normal?

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The financial crisis made the word credit infamous. It was upgraded from financial jargon to everyday language. People became more aware of ‘scores’ and ‘ratings’ and how they affect so many things: your ability to get a job, buy or rent a property, get a mobile phone contract, car insurance or open a bank account.

I’m a firm believer in the mantra: knowledge is power. Savvy consumers can seize control of their finances by checking their credit record and taking steps to build a good credit rating if necessary. It pays to do this for the reasons mentioned above.

As we emerge from those darker days, it seems people are a bit older but still none-the-wiser about credit scoring. A recent survey[1] found one in five UK adults have no idea what a credit score is; and of those who’d been denied credit, one in ten said they only realised they had a bad credit score when they got turned down for a mortgage.

This suggests two things: consumers are confused about credit scores and, despite valiant marketing efforts, credit reference agencies still have work to do when it comes to helping customers take control of their ratings.

I prefer to look at things from a different angle. Personally, I believe the long-established lending approaches are ripe for challenging. It’s not just a case of customers modifying their money habits. The lending sector has to adapt too.

Traditional lenders will tap into a customer’s credit report to diligently gauge financial trustworthiness before lending a penny. But they’re unlikely to recognise that customer in a crowd if you paid them. That’s because they use credit metrics to get quick and easy subjective view of the customer’s credit profile.

This approach is fine and has been seen to be extremely successful in mainstream high street first charge lending. However, second charge lending is about bespoke criteria - factors which first-charge lenders may not want (or need) to look at. It’s about looking beyond the obvious criteria, and seeing the actual customer and their individual needs.

As last year’s global events demonstrated, the world is changing. People have different demands now compared to even just a few years ago. The same is true of the financial industry.

Regulation has opened the market for challenger banks like Masthaven. We’re taking a fresh approach – to help clients who have different lifestyles, unusual incomes, loan requirements or credit profiles that differ to the norm - ‘normal’ by traditional lending standards that is.

As the challengers begin to strut down the banking catwalk, ticking the ‘normal’ box is going out of fashion. After-all who wants to be normal? Not me. I am an individual, not a profile. I am sure most of my customers would agree.

When it comes to customer profiling, I fear traditional lenders are peering down the wrong end of the telescope – looking for what the wider financial market wants to see, not at what a lender wants to see. I believe lenders restricted by this perspective are missing the opportunity to flex and align their risk with individual client needs. In other words they are simply ticking boxes and not necessarily reading the real situation.

We look at a client’s credit position with a human eye, not just a computer screen. We assess and understand their past and I feel this is a better assessment of the risk. To us, ‘different’ doesn’t always equal ‘risky’.

Working lives are symptomatic of how life has changed. For example, self-employment is at its highest level in 40 years, according to official statistics[2]. Specialist lenders spotted the changing customer a while ago. As IMLA[3] data confirmed in April 2015, over half (56%) of mortgage brokers reported an increase in the volume of cases placed with ‘specialist’ lenders.

In order to evolve successfully, specialist lending in the second charge market has to address a range of moving parts, all shifting at different rates: from the rise in self-employed and contractor income to lending into retirement for an ageing population, to name just a few.

I believe the market has an appetite to offer second charge mortgage products that meet different customer needs, but I don’t see a sector wide response yet. For Masthaven, flexibility is a key part of the solution. For example, we manually underwrite cases to meet ‘unusual’ customer needs. The lending sector has to face it - unusual business is now business-as-usual.


[1] Credit Card provider Vanquis:

[2] ONS: UK Labour Market: February 2016

[3] IMLA: The New ‘Normal’ – One Year On (IMLA, April 2015)