The New Black

Most of us assume non-standard is someone else’s problem but this catch-all descriptive term is slowly going mainstream something that has been hastened by the recent pandemic. Before lockdown, the number of people falling into the non-standard category had been steadily increasing, typically categorised as people or circumstances that don’t conform to the perceived norm, I say perceived because this view is rapidly becoming outdated. Since the lockdown however, the number of people who have lost their job or suffered financial loss as a result has increased resulting in more people with impaired credit. The thing is non-standard can mean different things to different people, but the lines are becoming blurred when it comes to lending and insurance.

The historic association with non-standard lending was typically categorised with terms such as near prime, sub prime plus a myriad of different colours of the same but following the banking crisis in 2008 terms like this all but disappeared. For a while it remained under the radar being serviced to some extent by the second charge market, but more recently there has been a re-emergence of this type of lending but today typically described as non-standard.

In insurance terms non-standard was a term typically used to describe a property risk that did not conform to the normal type of construction, thatched roofs, or properties susceptible to flooding or subsidence, however, as the data available to insurers continues to evolve more and more property types and indeed individual policyholder profiles and lifestyles are also being swept up under the non-standard banner. Again, the pandemic will force more people into the non-standard category whether that be due to financial circumstances or simply changes in the way they work, for example it is estimated that working from home will remain a much more popular option long after the pandemic has passed and this is something traditional household policies have struggled to cover.

So why is this important? There are two main layers to the answer to this question, firstly as professional advisers you need to know where to go in order to access the products and services that will enable you to give your non-standard clients the right advice especially as this will now make up an increasing segment of the community and secondly, making sure these people are not left behind as the open finance initiative becomes ever more popular.

The FCA are looking at the implications of broadening the Open Finance initiative to a wider range of financial services and products, this quiet revolution created by open banking a couple of years ago which allowed individuals to authorise third party providers access to their bank accounts in order to extend the range of services available. included new entrants like Monzo, Revolut and Starling, much of which early adopters like me now take for granted. And are now seeking to extend this functionality to all sorts of financial products like savings, mortgages, and insurance. Following the success of open banking this feels nothing short of a major revolution in the way individuals will be able to manage their financial needs.

However, This has the potential to leave a significant number of customers behind, the more vulnerable in society and in particular those who fall into the non-standard category, and this is something that we all need to be aware of and ensure that those making the rules are aware brokers like Bluestone Mortgages recently were quoted as saying “any move to help borrowers understand the financial options available to them is a good thing and ensuring the interests of non-standard consumers at placed at the forefront of open finance’s development will go a long way towards improving financial inclusion for all in the UK”. Something we should all support.