For a long time there have been two camps in the Armed Forces as far as mainstream financial services are concerned. In our experience this issue does appear to affect the Army more acutely than the other services, but the RAF and Navy are far from excluded from the issue.
The first camp looks something like this. Married and in quarters or private accommodation, over 30 years old, ranked CPL or above, UK based, and with a good credit history. On paper, for the purposes of finance and credit scoring, the fact that this person is in the military is merely a detail and of little significance. Motor finance, mortgages, credit cards, phones, loans, and everything else financial, there is no difference really in application to any other professional, responsible, UK citizen, and they will have the pick of the bunch when it comes to choosing who they choose to give their finance business to, which mortgage provider they choose, what car to buy and how to finance it.
All of this is because, realise it or not, over time this type of demographic has slipped very neatly into a few key positions. They are in a credit searchable property, unlike living in the block, they will probably be on the voters roll, which is hard and requires organisation if you are either in barracks or abroad. They have also reached an age and income bracket that is favoured by lenders, the lender can get accurate search information on previous credit agreements which comforts them when they are considering customers, and if your credit is good, they will be able to see that you have demonstrated you have responsibly maintained the previous agreements you have had, so a new one should not be an issue. Credit score systems, the systems that the majority of lenders live and die by these days, will probably score this type of application way over the required bar, and indicate to the credit provider you are a good risk as a customer that should be approved for finance of most types.
So what happens if you joined at 18, left home, got posted to Germany for three years, returned to the UK at 21 into barracks, and you want to finance a car?
Well, the truth is, not much. You will unlikely be on the voters roll as you have been away, and this is a big thing for lenders as they want to see that they have accurately traced where you have been because if they can’t find you, their first question is where have you really been, and what credit nasties are you hiding at undisclosed addresses. You will unlikely have any credit profiles apart from maybe a phone or current account. Another black mark because lenders want to see what we call comparative credit, i.e. you paid for your last car at £150 per month, therefore you should be ok for the new car at £200 per month. And as for searching a barracks address, in most cases you may as well put your local park or pub on the application form as your home address because barracks are not considered domestic addresses for the majority of credit search requests. This will unlikely turn up any accurate information on a credit search, assuming there is any information at all of which usually there isn’t, even if your bank or other credit providers post your account statements or information there.
So there you are, back in the UK, having done nothing financially wrong, with significant expendable income as you do not have the rent and bills that other people of the same age in different careers have, you want to buy a car and the computer says no!
If you were to take a civilian, and apply the same risk grading, it would be in the main part correct. Why would you want to lend money to someone who has no history of paying loans back? Why would you lend to someone who has no stable traceable address, or more to the point, someone who could be anywhere in the country in the future as history says they move a lot or at least do not have a long term fixed address, with the car you have financed, and you as the lender are unable to repossess it simply because you don’t know where it is? And lastly, why would you lend money to someone who earns £1200 net per month, and wants to spend £300 of it on a nice car, but hasn’t really thought about rent, gas, electric, and living expenses correctly, who will potentially fall quickly into arrears?
Well the short answer is you wouldn’t.
Armed Forces are different, so why have so few people realised this yet?
As a company we have, and we have a successful business providing motor finance to serving members, but we are the very tip of a very large iceberg. Yes, there will always be some people in every walk of life who seem incapable of organising themselves; some will always default on agreements. But you know what, we would be much happier lending to a 21 year old serving member, who has £1,100 of expendable income each month, a stable and secure job, for a car that is their pride and joy, than we would be lending to the same 21 year old civilian, earning the same money, but who has many bills and other commitments on top of the car, and will much more likely get to a situation where they really cannot pay anymore, rather than the small minority who simply choose not to pay.
So my overall points are this. Why has the MoD not done more to support lower ranking younger personnel with financial services, and to assist them in understanding something that often they don’t really care for until it adversely affects them, which is often too late?
Why has the financial services industry as a whole not made more efforts to understand Armed Forces circumstances, and their unique risk profiles?
It seems to me that we are in danger of creating a forgotten generation. Due to costs, lenders are automating everything they can because it is cheaper than having qualified human underwriters making decisions, and they do this to reduce operating costs allowing them to be more competitive in their offerings to customers, and therefore hopefully gain a larger slice of the wider civilian market. But the losers in this are the tens of thousands of personnel who risk their lives to protect the UK, and then are often almost completely excluded from mainstream financial services for their efforts due to their circumstances, which are bestowed upon them by their career choice.
We do think a bit differently, but we are the minority. If a 20 year old wants to spend a chunk of their income to have the newest, most orange, fastest Ford Focus ST they can, then good on them. So long as the payment and loan is sensible and affordable in relation to their circumstances, commitments, and income, then fine. We fully support younger members being able to see the reward for their efforts and sacrifices. We, however, are a small part of the bigger picture. More needs to be done to help all the serving members with financial services from general knowledge to mortgages, and the meaningful support isn’t really there aside from a few explanatory forms buried online about specific subjects. To cite a very good example of this, Philip Hammond, Defence Secretary at the time, reported via BBC news*, announced schemes designed to address the extremely low rate of homeownership for members of the Armed Forces. At the same time we tried to advertise in a prominent MoD controlled magazine for motor finance to Armed Forces, only to be told that there was a blanket ban of financial services advertising via MoD governed publications.
Did the then Defence Secretary not connect the two issues together?
If you create a generation of young men and women who are often all but excluded from any experience of mainstream finance, how do they expect them to suddenly turn around at 30, create a 10 year credit history and voters roll profile, walk into a bank, and get a low rate mortgage to buy their first home?
It isn’t conducive towards obtaining the result the politicians say in the headlines they would like to see. Great, a discounted offering for mortgages for service personnel all helps, but the real answer here is to create a connected process, designed especially for the forces, that educates, assists, and guides our newer recruits along the financial road. We are currently a long way from that, and much work needs to be done to resolve the issue, and with the exception of small pockets of private enterprise, like us, who have seen a commercial chink in the armour to build a business on, from what we can see little else is happening, and the further down the automated credit score finance road we go, the worse it is going to get for our younger, lower ranked personnel.
It all seems a little unfair doesn’t it?
* BBC reference link – http://www.bbc.co.uk/news/uk-24314794
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