A survey of 690 mortgage customers by Butterfield Mortgages found that 32 per cent of borrowers used a broker to find their current mortgage, 24 per cent stuck with their existing bank, and 21 per cent chose to get a new product from a previous mortgage provider.
This rise has seen specialist lending “forced into the spotlight” post-covid in particular, according to Sam O’Neill, head of bridging at Clifton Personal Finance.
O’Neill said: “With increasing regulation over time and lowering of rates, bridging and other specialist lending is becoming more and more mainstream. It’s no longer about being ‘brave’.”
“Bridging, in particular, has come to the forefront because of the uncertainty around Covid creating breaks in chains, a change in lifestyle as people want to do work on their current properties quickly to suit their needs, clients opting to be cash buyers and utilising bridging to capitalise on a hot property market and the stamp duty deadline rush that meant clients risked losing money if they missed it.”
Ian Hewett, founder at The Bearded Broker, reported seeing an approximate 25 per cent rise in specialist clients across the board over the past few years, citing the rigidity and “no common sense from mainstream lenders who just say no if it doesn’t tick a box”, as pushing potential customers toward specialists.
He said: “The rise is mainly to do with self-employed people, and how some lenders won’t take the most recent years’ income. Specialist lenders are doing it right by taking a look at the whole business. When you’ve got 15 years’ solid trading and one year that’s a covid blip then you should be looking at the 15 years, not the blip.”
The broker angle
When it comes intermediaries, the Butterfield study found that 62 per cent of borrowers feel brokers can find products that would not otherwise be available to them. A further 60 per cent believe working with intermediaries makes the application process easier.
Rob Jupp, group CEO at The Brightstar Group, said: “The diverse nature of the specialist mortgage market means it is well equipped to meet the individual needs of customers, but it can also make it more complex for brokers to maintain an in-depth knowledge of criteria and meaningful relationships with so many lenders.
“This is one of the reasons why partnering with a specialist distributor, that is fully immersed in the market and has experts across different sectors, is so important and can help to ensure that customers have the best outcomes for their circumstances.”
However, the key factor influencing 85 per cent of most borrowers’ choice of product was found to be terms of the loan and any additional fees to be paid, closely followed by the interest rates, at 84 per cent. The length of the fixed term and the ease of application were both important to 80 per cent of customers.
Lewis Shaw, founder of Shaw Financial Services, feels that the words ‘specialist lending’ still makes people think of higher interest rates or see it as “just another name for bad credit mortgages”.
He said: “It’s usually because their circumstances dictate that a particular lender or sub-set of lenders is available to them. As our working patterns change over time, as credit referencing plays a more prominent role, and with more people falling outside the ‘norm’ of standard employment and/or credit history, we’ll likely see increases in this area.
“If the UK finds itself in a recession, we’ve already seen banks expecting a significant rise in defaults and missed or late payments, which will naturally feed into a bigger slice of the mortgage pie to non-mainstream lenders to fill that gap.”
Chris Sykes, technical director at Private Finance, agrees with the data. He said: “You’re going to go with the lender that’s going to give you the best rate, mainstream or not. It’s rare that we get a client that hates a lender for some reason, but it’s common to have them asking for the best interest rates.
“The difference in rates that lenders are charging has changed. Mainstream has got closer to specialist rates now at around 2.2 per cent while and specialists are at around 2.5 per cent rates but offer different things, like taking on quirks.”
However, Skyes also points out that the mainstream is catching on. He said: “There are some quirks that mainstream lenders are now able to accept. Santander accepting loaned deposits, which helps parents protect their money if they do want it back at some stage.”
Alpa Bhakta, CEO of Butterfield Mortgages, said: “As the mortgage market continues to evolve, borrowers are increasingly looking beyond the regimented ‘tick-box’ centric methodology of many mainstream lenders.
“The research has unveiled clear concerns among mortgage customers surrounding the levels of care they are receiving from their mortgage provider. With interest rates and inflation rising, lenders must take note – more support is needed to help customers navigate this testing economic climate.”