According to research by IMLA, specialist lending is currently at a three-year high. The number of specialist applications that have led to completion increased by nearly 20 per cent between 2018 and 2019, while separate research has found that three in four intermediaries are confident about specialist lending opportunities.
There are good reasons for this. Huge shifts are occurring from types of employment to tenure, and these are affecting the shape of the industry as a whole. As time goes on, the traditional “one size fits all” approach is becoming increasingly out-dated.
As a nation we are adopting progressively varied working habits and this has meant that we have more complex sources of income. Indeed, according to figures from the Office of National Statistics, 4.8 million people in the UK are currently self-employed making up 15 per cent of the total workforce. Meanwhile two million professionals are currently classified as professional contractors, up 43 per cent since 2008.
Increasingly, workers are embracing more flexible working lives and less linear career paths. However, the high street banks have failed to catch up with these trends and many are unwilling to provide a mortgage to those customers that sit outside of the box.
Alongside the changing work pattern trends, the number of individuals with an adverse credit rating is also rising. It’s no longer unusual to have a slight blemish on your credit rating, and this is having a direct impact on the mortgage market and the service lenders should provide. For example, in the last year alone, there were more than a million County Court Judgements (CCJs) in England and Wales – twice the level seen five years ago.
While this number will include those who have defaulted on credit agreements running into thousands, it could also include those with an unpaid or disputed parking fine of £100. Yet, when it comes to applying for a mortgage, both fines could be viewed in the same light through an automated application process and effectively rejected.
At the other end of the scale, many consumers have no credit history whatsoever or have not been a named individual on household bills. Experian estimates the number of people who are “financially invisible” and will struggle to secure credit, could be as high as 5.8 million.
At the same time as borrowers’ finances becoming more complex, the housing market is evolving, as is the mortgage market that supports it.
Historically high house prices continue to cause affordability issues, requiring larger loans, and larger deposits. We’ve witnessed government intervention including Help to Buy, changes to stamp duty, and the support of shared ownership schemes. The market has also responded, with lenders developing new product types, and specialists offering broader criteria reinforced with manual underwriting that complex cases require.
The rise of ‘odd’ customers
The number of ‘odd’ customers is on the rise, and they are underserved by lenders. As well as being a growing market in terms of the number of individuals involved, it can also be a more valuable one for brokers. It’s estimated that specialist cases with complex incomes or impaired credit could earn brokers up to 68 per cent more.
For brokers thinking about diversifying into this market they need to get to know the specialist lenders that are willing to lend to these ‘odd’ customers.
Brokers that take the time to improve their knowledge, especially during this transitional time, will be well placed to provide tailored and accessible solutions for their clients.