According to a recent report, the UK has seen growth in the number of mortgages for non-standard borrowers, such as for buy-to-let landlords and lifetime mortgages. Since 2009, there has been a 19% increase each year to the value of the mortgage lending companies annual lending. These companies have seen their lending amounts increase to £17 billion per year in 2016, a significant increase on the £5 billion that was recorded in 2009.
The specialist lenders are said to be in a very strong position despite the previous ever changing nature of the market, and that they are capturing the ongoing growth in the number of the UK’s non-standard borrowers that mainstream lenders may not look to work with.
The Specialist Lending Approach
It is stated within the report that the upturn, following the financial crisis, is because of the level of concentration that the sector has given to niche segments that have been neglected by the mainstream lenders. Working in such a segment and with a flexible and innovative approach is what allowed the sector to rebuild itself, maintaining much higher margins, based on the difference between mortgage rates.
As part of the specialist lenders niche focus, there have been four main products that they have targeted within their approach. This range of products includes buy-to-let mortgages, second charge mortgages, specialist residential mortgages and bridging loans, and they have been dominated by such companies ever since the recession.
The History of Specialist Lending Companies
Specialist lending companies first began operations in the 1980s following the financial deregulation by the Government that was in power at the time. The lenders looked to wholesale markets for their funding and heavily relied upon introductions for the majority of their business. The sector then became mainly focused on niches in the 1990s, including buy-to-let property investments, substantially different to that of the mainstream lending companies.
The specialist lender sector has endured both ups and downs over the years, seeing their market share increase and decrease dramatically on two separate occasions. Firstly, in the late 1980s, the sector saw the market share increase to 14%, until significantly falling with thanks to the housing downturn and higher interest rates. Following this, in the late 1990s, the specialist lending sector again increased following the recovery of the housing market and the economy overall, until it again dropped during the recession.
The Future of Specialist Lending Companies
The report suggests that the future looks bright for the specialist lending sector, with the current market and the economy suggesting that interest from non-standard borrowers is likely to continue to flourish. Increased numbers of mortgages are being obtained via intermediaries, allowing even the newest of mortgage providers with the opportunity to operate within the market. This is due to the fact that the intermediaries scan for the most suitable lender based on various details of the client, including price and security, rather than basing it on the brand of the lender.
It is also pointed out by the IMLA that the levels of specialist lending is down on the pre-financial crisis numbers, leading market specialists to believe that there is currently a demand that is yet to be met. With numbers of self-employed people up to 4.8 million and 912,000 county court judgements issued across England and Wales, the ability to access mainstream lending may become difficult for large numbers of people in the future. This suggests a continuous growth of the market in years to come, as well as a stronger position for lenders in terms of stability, should there be any economic downturn in the future.
Peter Williams, the executive director of IMLA, said:
“Specialist lenders have enjoyed strong growth since the end of the recession, largely through their focus on classically niche, less well-served areas of the market. Mortgages are not one size fits all products and as such the number of borrowers with non-standard needs is increasing. Through innovation and flexibility, combined with strong underwriting standards, specialist lenders have capitalised on the growing demand for products like specialist residential and lifetime mortgages.
It is important that mortgage finance is available to a broad range of borrowers, and by serving non-standard areas of the market, specialist lenders are supporting inclusiveness while holding true to today’s strict affordability criteria. There is strong evidence to suggest that specialist lenders can now break the cycle that has defined the segment in the past. The range of borrowers who qualify for a mortgage on standard mainstream terms will remain restricted, and the mortgage market is also becoming increasingly intermediated.”