Niche mortgages rise in appeal

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Specialist lending moves into the mainstream

Niche mortgages rise in appeal

Specialist lending is one of those catch-all terms frequently found in financial literature that can refer to several different areas.

What is more, it seems the definition of the term is constantly changing. An intermediary operating in the market at the turn of the millennium would have been likely to consider buy-to-let mortgages as a form of specialist lending.

However, that has since become mainstream as high-street lenders increasingly explore different avenues of revenue to supplement waning income from the highly competitive prime mortgage market sphere.

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To gauge advisers’ attitudes to the specialist market, Financial Adviser surveyed more than 149 advisers with mortgage permissions.

The findings support the notion that mortgages for landlords have become commonplace. Twenty-six per cent of respondents claimed to advise on applications for such loans once or more a week on average.

The buy-to-let market has diversified to cater to landlords with unconventional circumstances. However, the sample appeared less proficient in complex buy-to-lets. Sixty per cent of respondents claimed to have advised on the area a few times a year on average – substantially below the 97 per cent figure for normal buy-to-lets.

The recent hike in stamp duty on buy-to-lets and the upcoming changes to taxation on income generated on such properties to a flat rate of 20 per cent has somewhat pushed the market back under the specialist banner.

Whether there is a true definition for this type of lending is open to debate.

Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, said: “I think specialist lending embraces anything that is strange, whether it is in relation to the income type, the funding requirements or the type of property.”

For the purpose of this article, specialist lending refers to sub-prime, second-charge and self-employed mortgages as well as bridging loans and lending into retirement.

Specialist lending has risen to prominence from the more recondite niches of the mortgage industry.

The latest figures from the Council of Mortgage Lenders reveal specialist lenders as well as challenger banks increased their gross lending by 56 per cent last year compared to the year before, translating to a 2.9 per cent growth in their collective market share.

This suggests that advisers are open to securing mortgages on behalf of their clients through young providers. Seventy four per cent of the sample either disagreed, strongly disagreed or disagreed completely with the idea of only going to high street lenders to place buy-to-let mortgages.

The market, as with the wider mortgage industry, took a hit during the 2007/08 financial crisis and in the ensuing years, but numerous financial regulations have since been ushered in.

One of these is the third iteration of the EU Basel directive, which sought to strengthen the regulation, supervision and risk management of the banking sector.