Gina Blagden, Head of Sales, discusses the importance of specialist support during the cost-of-living crisis.
The cost-of-living crisis is on everyone’s minds at the moment. Whether a high earner or minimum wage, homeowner or renter, every person is likely to feel the effects of rising bills and inflationary pressures – albeit in varied ways.
For those looking to get on – or move up – the property ladder, this is a particularly fraught time. The Bank of England just imposed its largest base rate hike since 1989, and this is only the most recent in a spate of challenges that have caused mainstream mortgage lenders to batten down the hatches. In this case, that means pulling products, raising rates, and restricting their lending appetites, particularly for higher loan-to-values (LTVs).
There have been some more positive reports of caution cooling off, and even some signs that both specialist and high street lenders are cutting rates even as the base rate rises. However, the effects of the uncertainty are far from gone. For example, Moneyfacts data shows that there were 137 mortgages available at 95% LTV in October, compared with 347 at the start of the year.
This is particularly concerning, considering that people’s savings are likely to be taking a considerable hit as borrowers focus on rising bills and everyday living costs, over and above setting aside cash for a deposit.
Meanwhile, the Bank of England reports that August saw £1.1 billion was borrowed in the form of consumer credit in August alone, above the pre-pandemic average of £1 billion. While the use of credit in itself is not a cause for concern, Pepper Money has suggested that 3.2 million people missed a major payment during the pandemic. With the UK’s money troubles far from over, we could be looking down the barrel of an adverse credit crisis.
All of this sits against the background that, for better or worse, our finances are becoming more complex with every passing year. From the rise in self-employment to the increasing normality of taking debt into retirement, for example, fewer and fewer people fit into a prescribed box.
Specialist support
This is where the specialist market comes in. This large and growing market started out catering to those few niche cases that didn’t quite fit the high street and has today evolved into a sector equipped to cater to the growing demand from an increasing number of customers whose financial circumstances are not completely straightforward. Set against a backdrop of flat growth in overall mortgage lending, the specialist market is tipped for significant growth. Together, alongside economist Dr John Glen, has suggested that the market could grow from its current size of £5 billion to total lending figures of as much as £16 billion by 2030, doubling its share of the overall mortgage market.
At the moment, the areas of particularly high demand within the specialist market reflect the changing world around us and, in our experience, demand is spiking in four key areas: income stretches, shared ownership, recent adverse credit, and debt consolidation.
Income stretch and shared ownership
The popularity of income stretch mortgages should be self-explanatory. According to Statista, in the three months to August 2022, average weekly regular pay grew by 5.4% compared with the same period last year. Meanwhile, the inflation rate for the Consumer Price Index was 9.9%, while Land Registry data shows that house prices in August were up 13.6% year-on-year.
Prices – whether for every day or life-changing purchases – are far outstripping wage growth. Even more people are going to be turning to lenders to help understand how to make their income stretch to afford their dream home.
There are also other factors to consider. A high net worth (HNW) borrower’s income might not pass muster when put through an affordability calculator, while a self-employed individual might face challenges proving stable pay at a level that fits with a mainstream lender’s criteria.
Similarly, for those who cannot necessarily afford a full deposit or mortgage payments, but want to take the first step, schemes like shared ownership can be just the answer. However, many high-street mortgage lenders do not consider shared ownership properties.
The specialist market, underpinned by human underwriting and the ability to see past the surface, can help ensure that otherwise solid lending prospects are not left out in the cold.
Adverse credit and debt consolidation
It does not take much to understand why the current environment is making consumer credit borrowing more common, and indeed why many people – facing unexpected challenges in the years since the pandemic hit our shores – have missed payments and experienced poor or bad credit.
However, taking the time to look closer, we often find that having an instance of adverse credit in the past does not necessarily mean someone is going to fail to make their payments in the future. Instead, specialist lenders can look past the headlines and consider whether someone is a positive lending prospect.
Meanwhile, as we look ahead to a period of increased financial hardship, it is worth reaching out to clients to discuss debt consolidation. For those with a property to leverage, condensing loans into one lower monthly payment could, in fact, be the key to avoiding adverse credit down the line.
Opportunities for brokers
Considering the current environment, the specialist market is only likely to grow. Where the mainstream market appears to have gone through a period of contraction, brokers without previous experience should consider widening their prospects and learning more about what doors specialist products could open for their clients.
In the immediate future, demand for heavy adverse, income stretch, and shared ownership products – all of which are still available – is only going to grow. Meanwhile, as the mainstream market continues to be cautious, specialist lenders may be the ideal route for anyone looking to secure lending up to 90% LTV.
Whether an old hand or a new face in the market, it is vital to keep up to date with the trends and frequent changes in criteria and pricing. This can be time-consuming, particularly if the majority of your business remains in the mainstream market. However, by tapping into working alongside a specialist distributor, like Brightstar, you can tap into their specialist expertise and make sure you are in the best place to offer the right specialist solutions to your clients.
