Each could be forgiven for thinking that, despite the tenth anniversary of the credit crisis being this August, it is harder than ever for them to get the mortgage that they need to finance the property they want.
As those who were in the mortgage industry at the time will recall, stage one of the credit crisis began on 9 August 2007 with the news that a number of global investment banks were ceasing activity in hedge funds that specialised in US mortgage debt.
Uncertainty about just how much money individual banks had invested in possibly worthless derivatives quickly spread around the world and banks stopped doing business with each other. This global contagion spread, resulting in the nationalisation of Northern Rock in February 2008, until it came to a crisis point on 15 September 2008 when the US government allowed Lehman Brothers to go bankrupt, putting paid to the idea that banks were too big to fail.
Mortgage lenders failing to react
Since those times of financial crisis, the needs of consumers have been constantly evolving, but the mainstream mortgage industry, with its low appetite for risk, has not kept pace with new demands. Whilst many lenders have recognised the changing profile of today’s borrowers, whose shifting habits and lifestyles mean that they are rejected because of their complex income sources and less than ‘perfect’ credit profiles, they have failed to react.
Over the last few years, the market has seen the re-emergence of specialist lenders focussing on customers who have been neglected by the mainstream. In 2016, specialist lenders advanced a total of £16.7bn against a low of £5bn in 2009, an increase of 19% a year compared to 8% for gross mortgage lending as a whole, according to IMLA. Many of these new brands know their target market segments very well, understand their needs, and can provide innovative products that have been specially designed for these often-disregarded sectors.
For example, several specialist lenders will consider residential mortgage borrowers who fit the following criteria:
- Self-employed: one year’s verified accounts or SA302. Dividends and net profit included
- Borrowers approaching or in retirement: up to 85 years old at the end of the term. Current income used if retirement more than 10 years away. Affordability includes 100% pension income
- Impaired and improving credit history: small or life events allowable
- ‘Buy together’ mortgages: up to four applicants accepted with all incomes considered
- First-time buyers looking to buy with the help of a parent or close relative
- Contractors: six months’ contract or rolling three months renewal at least once. Only one-year track record of employment in the same line of work required.
As a result, specialist lenders are in the perfect position to help change the industry’s view of what makes a “perfect borrower”, a concept that has become increasingly unrealistic in today’s society.
Intermediaries have an important role to play when it comes to educating borrowers about how specialist lenders can help them – but they can’t do it alone. Lenders will need to communicate frequently with brokers to ensure they are informed on the latest innovations and are able to suggest the most appropriate deals for clients.
Perceptions of what makes a good borrower are changing, but more still needs to be done. For their part, borrowers need to be aware of the growing specialist lending market, not least so that they have the confidence to seek out this kind of mortgage advice, knowing that there may be a lender out there able to help them. As the mortgage market continues to evolve, we hope that more customers with blips on their credit records will be able to access the lending solutions they need – and deserve.