Chris Bramham, Brightstar director of specialist mortgages and buy-to-let, reveals what he believes next year will bring for specialist borrowers.
Current predictions for the mortgage market in 2016 are in the region of £230bn, so relatively flat growth on 2015 with an estimated final figure of around £215bn.
The result of this will be lenders all competing for the same business.
The exception to this is likely to be the specialist mortgage market.
Specialist mortgages form about 6% of the UK market, and I fully expect this to exceed 10% over the next few years as new lenders, products and solutions evolve.
This is coupled with wider awareness and acceptance that the specialist market is a vital component of the whole market, as this underpins the growth expectations we have for the sector.
As a wider range of mortgages becomes available it will be essential to continue to provide education to the broker community regarding just what is available for their clients.
We have already seen a number of new entrants in the last year with Pepper Home Loans, Foundation, Bluestone and Fleet for example. We are likely to see at least this many again in 2016 with existing lenders looking to expand, and prime lenders considering moving into the specialist arena, particularly for buy-to-let.
Magellan estimates of one in four people (26%) is declined due to adverse credit, while the lender also believes that one in five adults in the UK has a CCJ.
At last we are seeing new lenders now judging people on their current situation rather than on their past.
For example, one new entrant in the UK, Bluestone, sees its adverse book in Australia performing better than some of their competitors’ prime books. Borrowers who have found themselves in a poor credit situation in the past, and struggled to get a mortgage, are genuinely more likely to maintain their mortgage and financial commitments, to avoid a repetition of their previous credit situation.
A different aspect of specialist mortgages is buy-to-let for HMOs or student lets. The demand for this is growing, but it remains a true specialist market that only a small number of lenders deal with.
Investors in buy-to-let will be hit by the new tax changes and many will need to consider a Special Purpose Vehicle to avoid this, which itself could incur significant costs.
As a result, it will be increasingly important for brokers and their clients to work closely with tax consultants in 2016.
A huge part of the market is the appetite that specialist lenders have for the self-employed borrowers. Given the rise in the numbers of self-employed across the UK, this is a market that we cannot ignore and which it is wrong to do so.
There is still a perception that mortgages for the self-employed are hard or impossible to find, but an increasing number of specialist lenders are treating the self-employed with the respect that they deserve, so we are seeing a growing number of solutions available from the specialist market.
The key words of the 2016 specialist lending market are: growth, education, understanding and acceptance.
The specialist market will continue to grow and evolve, and the positives are that brokers no longer need to lose one in four of their clients because they cannot find them a mortgage.
Far fewer clients are then disenfranchised because they only have an option of going to the mainstream lenders.
The benefit to the broker is that there are companies such as Brightstar which can help you to find all of the available solutions in this market.
Not only does the broker stand a better chance of retaining the client, they have the additional benefit of still looking after their protection and general insurance needs.