Brokers are confident tougher rules around so-called sub-prime mortgages will prevent the return of irresponsible lending.
After lenders fled the market with the credit crunch the specialist lending sector, which caters for niche market segments such as buy-to-let, lifetime mortgaging and those with poor credit ratings, has undergone a boom in the recent years partly driven by the rise of intermediaries.
According to the Intermediary Mortgage Lenders Association, the total value of specialist lending has more than tripled from £5bn to £17bn per year since 2009.
But the rapid growth of household borrowing – the vast majority of which is made up of mortgages – has prompted warnings from the International Monetary Fund that it could spark another crisis.
Yet mortgage brokers are largely unconcerned by the rise of specialist lending, as tighter regulations have been put in place since the financial crisis.
Bob Riach, principal at Scunthorpe-based Riach Financial Advisers, said: “I think over the last six months to 13 months I have started to do a bit more on [specialist lending].
“I think a lot has been brought about by high street lenders tightening up on criteria, and that is pushing people to a lot of specialist lenders.
“The ones I have done have been when people have had a minor credit blip, but it has been recently.
"I had a client who made a late payment on two credit cards; they did not pay the direct debit and went on holiday so they were a week late, and it was in the last six months. High street lenders would not touch it.
“It is not something that concerns me. They will lend on the cases but they do tend to ask more questions.”
Mr Riach added that the lenders will ask for supporting documents to prove why payments had been missed; he said they check bank statements and do an audit trail.
“They are treating the customer fairly and doing due diligence, so the quality is going to be better,” he explained.
Jane King, mortgage adviser at London-based Ash-Ridge, said: “I think someone said six months ago that because the prime market was so competitive, lenders are now fighting for the bottom of the market rather than the top of the market.
“Lenders are now considering people with various issues who two or three years ago would have struggled. At the bottom end, there is a lot more choice, and lenders are taking more of a relaxed view.
“There is no margin now at the top. Buy-to-let has fallen of a cliff where I am. What are lenders going to do?”
Ms King added that affordability rules still applied, so borrowers have to be stress tested to show they would be able to cope with a rise in interest rates.
She said: “If a customer can afford it, their background is less and less important – if you put a reasonable premium on that rate.
“If someone has gone through a life-changing event, it is not always their fault. A bad credit history is more common than you think.”
Mike Richards, director at London-based Mortgage Concepts Associates, also said he had no 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.
But Martin Stewart, director at London Money, warned of taking a complacent attitude towards high levels of consumer debt.
He said: “The debt markets are much higher now than they were in 2007, which makes me question what happened to all the deleveraging that was meant to happen?
“We live in a society where we see some people on £400,000 a year have no savings, others driving cars that are as big as their house and the remainder being fully paid up members of the ‘I Must Have It Now Even If I Can’t Afford It’ club.”
He also suggested lenders should not be viewed as discriminatory for declining certain types of borrower.
“These are businesses and not charities,” he said. “I see cases where I think if I had the money I’d lend it to them myself, and yet others that I wouldn’t lend them 10p.”
simon.allin@ft.com
