Demand for specialist residential mortgages driven by complex customer needs

Michael Lloyd

March 15, 2018

Demand for specialist residential mortgages is being driven by a diverse set of customer needs, principally from the self-employed, and not by adverse credit.

Paragon’s Q4 2017 Financial Adviser Confidence Tracking (FACT) Index report found intermediaries thought self-employed customers were the most difficult to find solutions for. This represents one in five of all cases (21%).

This mirrors the sharp rise in the number of self-employed in the UK, up 24% over the last 10 years from 3.9 million to almost 4.8 million in the final quarter of 2017 according to the ONS.

John Heron, managing director of mortgages at Paragon said: “It seems clear from this latest research that complexity around employment and income are the most significant reasons that intermediaries review the options available from specialist residential lenders.

“Customers with these characteristics are more likely to benefit from the detailed individual approach to underwriting that lenders in this segment of the mortgage market can deliver.

“With employment patterns continuing to become increasingly diverse and complex, we may well see this area of the market expanding going forward.”

After self-employed business, intermediaries identified interest-only (15%), complex income (14%), high loan-to-value (14%) and lending into retirement (11%) as the next most popular types of specialist mortgage business.

In contrast, low income business made up just 7% of specialist mortgage applications in Q4 2017, with adverse credit business lower still at 6%.

Adverse credit has consistently been the least dominant factor in the requirement for specialist mortgage lending since the FACT Index report began tracking specialist residential lending characteristics in March 2015.

Alongside specialist residential mortgages, more than a quarter of intermediaries (26%) said that they expect to increase second charge mortgage business in the next 12 months.

They stated that second charge mortgage lending represented a viable alternative to remortgaging and further advances for certain customers.

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