Lenders are always looking at different ways to keep the ball rolling when it comes to helping people get onto the property ladder. The sharp rise in house prices coupled with a somewhat staid increase in salary levels has prompted lenders to look at different ways of maintaining momentum in the mortgage market.
This move to help sustain the current mortgage boom has led to many lenders relaxing underwriting criteria and moving towards affordability based methods of calculating loan levels.
One of the innovations that has also helped to spur the first-time buyer market is the creation of professional mortgages, designed to meet the individual needs of those in professional occupations. These products were first introduced by Scottish Widows Bank in 1997 and the concept has since been replicated by other specialist lenders such as Accord and Standard Life Bank.
Career progression
The types of professions these lenders target vary, but most include accountants, dentists, teachers and solicitors. The concept of the professional mortgage is based on the premise that these trainee professionals are guaranteed to reach a certain salary level, which will steadily increase as their careers develop.
Commenting, Gordon Bowden, business development director at Scottish Widows Bank, says: “The concept behind professional mortgages is that from a lender perspective, professionals are a good risk as many, such as dentists and doctors will buy into the practice at a later date and become a partner in that business, which means they have a vested interest in its success. Similarly, they will also increase their salary significantly as there is a definite career progression and upward trend in remuneration, which is not guaranteed in many other careers.”
Linda Will, managing director at specialist lender, Accord Mortgages, agrees that the concept behind professional mortgages is the long-term viability of a good borrower. She says: “Professional mortgages are simply about stretching the income levels of the borrower beyond the normal limits. So for example, a trainee solicitor knows exactly what they are going to be earning after so many years of practice and therefore, allowing them the option to stretch themselves is a good way of helping them get on the property ladder with the guarantee that they will have a higher salary as they mature professionally in their careers.”
Opening a niche
Targeting professionals and stretching income levels in this way has opened up something of a niche market in the mortgage industry. Scottish Widows Bank, for example, offers up to 110 per cent loan-to-value (LTV), with the additional 10 per cent designed to cover legal costs and the essential items that can be a drain on finances, such as carpets and furnishings. This 10 per cent is taken out on a capital interest basis over a five-year period, and must be repaid after this time. While this feature is unique to Scottish Widows Banks’ proposition, both Accord and Standard Life Bank also offer high income multiples and up to 100 per cent LTV, based on the capability of the borrower to repay and as long as they fit the criteria.
However, despite the focus and cheers of success from lenders, Terry Pritchard of Case Consultants, says there is a danger of targeted products becoming gimmicks. He said: “A higher number of professionals have gone into bankruptcy this year than ever before. Anything that targets a specific sector means that somewhere along the line, somebody is paying for it. Often these types of mortgage products over-complicate matters – why can’t these products be available to everybody?”
Looking ahead, it is likely the sector will remain niche as number of lenders in the market will remain quite small, as will the size of the sector it is targeting, says Nick Gardner, director at Chase de Vere Mortgage Management.
He comments: “Professional mortgages are a useful port of call when you have a client who fits the criteria and needs to have their income stretched and while it has helped grow the market, it doesn’t necessarily mean the borrower gets a better rate and in some cases, it is worth while looking elsewhere.”
However, Jackie Moran, head of sales at Standard Life Bank, says with a continuous stream of professionals making the grade each year, brokers would do well to try and get to grips with this sector of the market.
She says: “The take up of professional mortgages is certainly growing and with new teachers and doctors graduating each year, coupled with the continued rise in house prices, professional mortgages are set for continued growth and success. They have certainly helped get many first-time buyers onto the property ladder.”
