Rewind the clock just five years and the term ‘specialist lending’ was not one bandied about the mortgage market.
Now, every trade publication worth its salt has an entire section dedicated to the sector. But just because the name specialist finance is new, the notion is not. Every adviser is well aware that clients do not come off the shelf. Every person is an individual with their own specific set of circumstances, assets, liabilities, prospects and objectives.
Yet in finance, lenders at least still have a tendency to treat every client in the same way – as though they ought to fit into pigeon hole a, b or c without deviating.
Brokers know this is rarely the case, and in many ways the clients who can squeeze themselves into lenders’ boxes do not need our help. Perhaps given that context, it is counter-intuitive to think that these are the clients most advisers deal with day in, day out.
It is really those who do not fit the mold, those whose circumstances are by definition individual, who desperately need a qualified mortgage adviser to assist them. It is encouraging, therefore, that networks and brokers alike are waking up to the advantage of helping these borrowers rather than labelling them a ‘problem’ that will take too much work for too little return.
There are several factors influencing this. Sub-prime as a category of borrower never went away – there are many hundreds of thousands of borrowers in the UK whose credit suffers a temporary blip due to death in the family, divorce, redundancy, serious illness or many other reasons. The need for mortgage finance remains. Today we refer to borrowers in this category as having ‘adverse credit’ and, to be fair, there are significant differences between this and the sub-prime of old.
The first is the regulation governing all first charge mortgage lending. Sub-prime was historically sold in tandem with self-certification mortgages, and financially vulnerable borrowers were often wooed by cheap discounted rates without having to prove their income or affordability.
This is now very definitely not the case. Perfect credit, adverse credit, no history of credit at all, lenders must now be satisfied that a borrower can afford the mortgage before it is awarded, meaning those with no job, no income and no prospects are simply not going to qualify. This shift has definitely meant that lending in this specialist category may be seen as higher risk, but it is not deemed reckless as sub-prime was in the past.
The second reason for increasing interest in adverse credit lending is that interest rates have been so low for so long that lenders are struggling to make money on mortgages at vanilla rates. Specialist loans for those with a history of adverse credit carry more risk and therefore attract higher rates of interest. In other words, lending in this market is a lot more profitable.
