SpecialistOct 3 2017

Mortgage brokers drive specialist lending boom

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Mortgage brokers drive specialist lending boom

Mortgage brokers have helped drive a boom in the specialist lending market that has seen gross lending triple since 2009.

The total value of specialist lending has soared from £5bn to £17bn per year during the past eight years, with annual growth of 19 per cent, according to data from the Intermediary Mortgage Lenders Association (IMLA).

Specialist lenders have achieved success by catering for growing, niche market segments that are not fully covered by mainstream lenders, such as buy-to-let and lifetime mortgaging and those with poor credit ratings, what is generally known as the sub-prime sector.

Irresponsible sub-prime lending was a major cause of the financial crisis. Tougher regulation introduced in the wake of the crisis made lending more complex for large institutions and gave specialist firms the chance to boost their presence in the market.

IMLA said the outlook for specialist lending is positive as economic conditions mean demand from ‘non-standard’ borrowers is likely to remain buoyant.

In addition, the rise of intermediated lending gives new brands a chance to compete with established players, as brokers are able to scan the whole market to find the most appropriate loan based on price, suitability and security, IMLA said.

Recent trends may limit people’s access to mainstream lending and continue to support demand in the specialist sector.

For example the self-employed can struggle to get a mortgage because of problems proving a regular income.

The number of self-employed people has increased to 4.8m people in the UK, according to the Office for National Statistics.

The same is true of those with poor credit histories.

Registry Trust data reveals there were a record 912,000 county court judgements issued against consumers in England and Wales in 2016, an indicator of people suffering debt problems.

IMLA said specialist lenders are well placed to deal with future economic volatility as their manual underwriting approach allows them to take borrowers’ personal circumstances into account, giving them greater flexibility.

Peter Williams, executive director of IMLA, said: “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.

“The growth of these lenders has been good for consumers too. 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.”

Mike Richards, director at London-based Mortgage Concepts Associates, commented: “I would not be surprised that specialist lending has increased since 2009 during the recession, because obviously a lot of lending stopped.

“A lot of people became self-employed and needed something; people still get into problems with debt and so they will require it. It is still an area that is very useful and increasing a lot.”

He added that he did not have any concerns about the sector as self-employed people now have to submit accounts and the Financial Conduct Authority would crack down on any lenders not complying with regulations.

simon.allin@ft.com