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The niche lending survey

  • 16/07/2002
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The niche mortgage market comes under scrutiny in the first of a new bi-annual survey conducted by Mortgage Solutions and Verso

Mortgage Solutions has teamed up with prime niche lender Verso to undertake a six-monthly survey of mortgage advisers’ views on activity in the niche mortgage market.

In the first of these surveys, we asked 100 advisers across the UK about which niche products were gaining or losing popularity; how the balance between purchase and remortgage business was changing, and general consumer awareness of niche mortgage products currently on offer from UK lenders. The five regions are:

• Region 1: Scotland and the North of England

• Region 2: East and West Midlands

• Region 3: South West and Wales.

• Region 4: London and the South East

• Region 5: National adviser firms serving the whole UK.

With regard to the main niche products available to borrowers who do not fit into the ‘mainstream’ category, the Verso/Mortgage Solutions survey asked about increased and decreased business levels for the following products: self cert, buy-to-let, let-to-buy, capital release, expatriate, self-build, 100% and equity release.

In total, there was far more ‘increased’ than ‘decreased’ interest across all eight niche products ‘ which is a healthy sign for the sector as a whole. A top scoring product was self-certification, with 80% (see graph 1) across all regions reporting a ‘moderate’ or ‘substantial’ increase in business or interest, with the strongest region being Wales and the South West which showed 38% of respondents reporting a ‘substantial’ increase in self-cert business or interest (see graph 5).

The increase in self-cert business was lowest in the East and West Midlands, with only 15% reporting a substantial increase.

A similar scenario

The same pattern occurs with buy to let ‘ confirming the common industry view this product has caught the imagination of the public. Here, 81% across all regions reported an overall increases in business ‘ with far higher percentages across the board reporting ‘substantial’ increases. The area with greatest interest was Scotland and the North, with 58% reporting substantially increased business (see graph 6).

Products where increased business was reported to be around 40% to 50% were capital release, equity release, and 100% mortgages. At the lower end of the scale, expatriate, self-build and let-to-buy mortgages showed only modest increases in popularity at 20%, 22% and 26% respectively (see graph 1).

Regarding the balance between purchase and remortgage business, only a tiny percentage overall reported any decrease in business: 2% for purchase and 6% for remortgage.

All regions reported a more than 75% increase in purchase business/interest. London and the South East are leading the field with an 88% increase. This would be expected for a relatively prosperous region; where prices are always the first to show substantial increases in a rising market; and where people are keen to get on the property ladder before prices rise out of their reach.

With remortgages, the increase in interest was less marked, but still substantial. The lowest level of increase was reported in Scotland and the North (46%) and the highest was in London and the South East (75%). Again, property price inflation in this region means equity in properties builds up quickly, making substantial sums available for capital release via remortgaging.

Improving awareness

Of the eight niche products specified, there was least awareness reported for expatriate mortgages, at 20% (see graph 2). This is expected, as interest is limited by the small proportion of UK nationals living abroad.

However, an awareness level of 32% was recorded by the group of respondents who were classed as ‘national’ brokerages. Here, anecdotally, those respondents that reported a good awareness remarked that where expatriate mortgages were required, borrowers were generally well informed ‘ however, awareness is low generally.

The best-known niche product was buy to let, with an overall awareness score of 59%. This high level is not surprising, as the subject is frequently covered in the personal finance columns of the national press, so that even those borrowers who are not contemplating investing in a rental property are well aware of the product. Awareness was highest in London and the South East and Scotland and the North at 60% and above and the lowest in Wales and the South West (46%).

Surprisingly, awareness of let-to-buy mortgages (where the borrower retains their original property to rent out and obtains another mortgage for the new property) was relatively low at only 31% overall, with the lowest awareness reported in the Midlands (26%),Wales and the West (28%). Let-to-buy can often be used to salvage chains that would otherwise collapse, so advisers may wish to raise general awareness of this option among their own customer bases.

Awareness of self-build mortgages was highest in Scotland and the North and Wales and the South West at 33% each, against an overall average of 28%.

Eddie Smith is director of business development at Verso


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