Unlocking homeownership

This article was created in partnership with Aldermore Bank.

Housing affordability remains a pivotal concern in the UK, acting as a barrier to homeownership for many. The steep climb in property prices, coupled with stagnant wage growth, has made the dream of homeownership increasingly elusive for a significant portion of the population.

In response to these challenges, many prospective homeowners have turned to alternative lending options. Specialist lenders, such as Aldermore Bank offer more flexible underwriting processes that consider the unique circumstances of borrowers, such as those with irregular incomes or adverse credit histories. This approach not only increases the accessibility of mortgages to underserved demographics but also underscores the importance of a responsible lending philosophy.

Head of strategic partnerships and growth, Nicola Goldie, of Aldermore Bank, emphasises the significance of a cohesive industry where brokers, lenders, and financial advisors work together. This collaboration is key to identifying and supporting viable candidates for homeownership, ensuring that borrowers are well-informed and prepared to make such a significant financial commitment.

Goldie stressed: “Everything that you read in the Press was, ‘No-one’s going to get a mortgage’. Actually, that’s not strictly true. Yes, the mortgage rates are higher than they have been for a long time, but there are still options for people that need it.”

The current focus in the mortgage industry highlights the invaluable role of advice, emphasising its importance in a market where 91% of products are intermediated, sold exclusively through brokers.

This setup underscores the necessity of educating broker partners on the diverse cases they might encounter, showcasing successful case studies to illustrate potential client profiles that could benefit from specialised attention. Without this, many potential homeowners face rejection from mainstream lenders and mistakenly conclude that homeownership is beyond their reach.

Strategic realignment: focusing on core sectors

Specialist lenders, according to Goldie, are honing in on four key demographic segments: self-employed individuals, first-time buyers, those with adverse credit histories, and buy-to-let (BTL) investors. These groups, often overlooked by traditional banking institutions, represent pivotal areas for growth and focus for lenders aiming to diversify and deepen their market penetration.

For self-employed individuals, the approach is to eschew one-size-fits-all solutions in favour of a more nuanced understanding of varied income sources and financial realities. The aim is to extend mortgage options that align more closely with their unique circumstances.

“Some applicants may have multiple sources of income, present only a single year’s accounts, or have irregular income patterns. Our goal is to look beyond these variances to identify the most suitable mortgage option,” said Goldie.

“To address these unique situations, we have developed a range of methods for assessing income. This includes considering retained profits, as well as utilising the client’s net profit plus salary. When evaluating income, we can factor in salary alongside dividends or a share of the profit after tax, depending on what best suits the individual’s situation.

“Our assessment criteria are flexible, allowing us to use these figures to determine affordability, provided an accountant can verify the income’s sustainability. Moreover, we are open to lending to clients with less than two years of accounts, demonstrating our commitment to a more holistic and understanding approach for self-employed applicants.”

First-time buyers

First-time buyers, despite facing challenges such as higher deposit requirements and regional disparities in affordability, are receiving targeted support. Top of Form

In reviewing UK finance data, it’s noted that there has been a decrease in the number of new first-time buyer mortgages, with 238,540 agreements from January to October last year, a drop from 305,210 in the same period of 2022. Addressing these difficulties, Aldermore’s First Time Buyer Index Report in the UK reveals that 23% of prospective first-time buyers were unable to secure a mortgage for various reasons. Notably, 21% of applicants were rejected due to insufficient deposits.

Aldermore focuses on initiatives like the re-introduction of 95% loan-to-value mortgages - a testament to the efforts being made to assist first-time buyers onto the property ladder.

Goldie maintained: “This holistic perspective underpins our significant investment in enhancing our residential proposition, aiming to support and expand opportunities for first-time buyers in this challenging market.”

Adverse credit

The demographic with adverse credit histories is also receiving attention, with lenders adopting a holistic and human-centric underwriting process. This approach acknowledges the minor credit blips that can often hinder mortgage applications and seeks to offer more inclusive financing solutions. With an estimated 7.91 million adults in the UK bearing some form of adverse credit, the role of these lenders in facilitating homeownership cannot be overstated.

“Recognizing that more individuals experience blips on their credit files, there’s a growing need for an approach that accounts for the nuances of each applicant’s history,” Goldie added. “Often, these blips result from minor issues, such as a late payment on a bill or unsecured loans, which shouldn’t disproportionately affect their borrowing capabilities.”

Lastly, the BTL segment, particularly professional landlords, benefits from products designed to streamline and economise the property management process, such as multi-property mortgage options. This includes allowing 30 properties on a single application that can help save time and money for both customers and broker partners. This focus on BTL and asset finance is indicative of the bank’s commitment to serving niche markets and customer segments.

Goldie emphasised the invaluable role of mortgage advice in navigating this complex terrain. A staggering 64% of first-time buyers reportedly proceed without consulting a broker, potentially missing out on alternative financing routes offered by specialist lenders. This gap underscores the critical need for education and awareness about the comprehensive range of options available, particularly for those who might find doors closed at traditional financial institutions.

Contrary to the bleak picture painted by several news outlets, where mortgage rate hikes seemed to spell doom for prospective borrowers, the truth is far more nuanced. Yes, mortgage rates have increased, but opportunities remain for those in need, highlighting the critical nature of informed advice.