If you had asked a mortgage intermediary 10 years ago for his definition of a specialist lender, he would have been likely to have described a specialist lender as one who offered buy-to-let mortgages, non-conforming lending or possibly even self-certification mortgages.
Pushed to name specialist lenders, the same intermediary would have had very few companies at his disposal. A decade ago, the mortgage market was much less sophisticated than today, and borrowers whose requirements were more complex than a straightforward prime mortgage on an owner-occupied property found that the choice of lenders open to them was very restricted and that they were lucky to get a mortgage at all, let alone enjoy a choice of lenders and products. Any mortgage that was offered would be on a low loan-to-value ratio and with limited options.
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Specialist mainstream
Today the Council of Mortgage Lenders (CML) estimates that almost 10 per cent of the entire mortgage market is made up of buy-to-let mortgages alone. Add in non-conforming, self-certification, semi-commercial and other non-standard lending and the true size of the specialist mortgage market begins to become clear.
What was once considered ‘specialist’ has now almost become mainstream, as high street lenders, whose profit margins have been squeezed on ‘traditional’ mortgage lending, enter the buy-to-let, non-conforming and self-certification markets, to target the increasing variety of mortgage requirements. These requirements have developed due to changes in employment patterns, the unpopularity of traditional pension schemes – leading to increases in the buy-to-let market – and the changing attitude to a borrower’s credit problems.
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True specialists
Where does this leave the truly specialist lenders? In fact, the original specialist lenders have developed even further into the specialist areas. While they still offer ‘mainstream specialist lending’ such as single property buy-to-let mortgages on standard construction rental property or a self-certification mortgage, the specialist lenders now offer much more. With many years’ underwriting expertise in specialist mortgages, they are well equipped to consider the more unusual mortgage applications and find a way to structure deals to meet borrowers’ needs.
Take buy-to-let mortgages; a specialist lender is not just someone who checks the rental cover needed fits his lending criteria, but one equipped to offer a mortgage on a houses in multiple occupancy property, understanding the market sufficiently to ensure that sufficient safeguards in the mortgage offer keep the property within the new regulations.
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A truly specialist lender will be happy to consider portfolio buy-to-let, lending sums typically up to £10 million on an entire portfolio of rental properties and is able to consider rental income across the entire portfolio, rather than just on a ‘per property’ basis, as a ‘mainstream specialist’ lender may have to do. Similarly, a specialist lender will be able to provide mortgages for non-UK residents, even where the borrower is an offshore company, rather than an individual.
A truly specialist lender will often work almost exclusively with the broker market and rarely promote themselves directly. This is because the types of mortgage that require the services of a specialist lender are not those that can often be placed by a borrower alone and so these clients approach brokers for advice on finding a suitable mortgage.
Years of experience
These lenders have accumulated years of underwriting expertise and do not rely solely on automated decision-making. Some lenders make a point of having a decision maker available to discuss complex cases with a broker. These underwriters have the experience to see whether a seemingly impossible case can be structured in such a way that it represents a good credit risk, with elements that might cause the deal to be rejected elsewhere presented in a way where it does not mean the application is turned down.
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An application for a property with minor agricultural restrictions is a good example of this; if a way of satisfying the restriction can be found, the property becomes more marketable and so easier to mortgage.
Over the years, this approach has enabled specialist lenders to finance converted churches, barns, castles and any number of unusual semi-commercial properties including doctors’ surgeries, kennels and shops with flats above them. Similarly, a truly specialist lender will be able to combine its self-certification facilities with other products offered, to tailor a package to meet a borrower’s needs, creating perhaps a self-certification semi-commercial mortgage or self-certified self-build mortgage.
Whether the complexity of a mortgage deal is caused by the type or number of properties involved, or by the circumstances, requirements and needs of the applicants themselves, a specialist lender will be able to look beyond the issues this causes and see whether the proposal represents a good commercial risk. If it does, the mortgage provider’s extensive underwriting skills and expertise will enable it to structure a proposal to meet the individual clients’ circumstances and requirements.
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