The residential mortgage sector has seen an unprecedented level of change over the last few years as the market adapts to the impacts of Covid, and more recently, the current economic climate and the ongoing cost-of-living crisis.
Consumers have adapted their lifestyles accordingly, but high street mortgage lenders haven’t kept pace with these socio-economic changes.
As a consequence, mortgage brokers are finding it increasingly difficult to place mortgages for their clients simply because their lifestyle changes mean that they no longer tick the boxes of standard lending criteria.
But this doesn’t mean that home buyers shouldn’t be able to either get onto the property ladder through making their first move, or moving up (or down) it, as the health of our overall economy relies on a buoyant property market. They aren’t necessarily high risk, just a different risk that some of the high street lenders haven’t adapted to cater for.
The shift to flexible ways of working, part-time hours, increasing self-employment or zero hours contracts penalise borrowers – but why should it?
A blemish or two on an otherwise flawless credit history penalises borrowers – but why should it?
Looking to buy a property in need of major refurbishment or an apartment on the twenty-second floor penalises borrowers – but why should it?
As our lives increase in complexity and our needs and wants become more specific, the more borrowers become ‘non-standard’ and ‘specialist’ – when in actuality the borrower wouldn’t consider themselves to be unusual or have complex needs. They simply want to buy their dream home, whatever their situation or the property’s shape, size or location.
This is why the specialist finance market is growing at such a pace and the specialist residential mortgage market if forecast to grow from £5bn to £16bn in lending in the next seven years.
Our own enquiry volumes have increased 33% year-on-year in both January and February, as mortgages brokers are turning to us and our expertise to support them and their clients in finding a borrowing solution.
Mortgage brokers’ perceptions of the specialist market are also changing as they become more involved with it and their confidence grows.
It is adaptable, flexible and responsive, and a sector where lenders have reacted quickly to our changing society and have nimbly brought to market new products that meet our ever changing needs.
We are also seeing a shift in type of products being sourced as a reaction to increasing interest rates, uncertainty of their future direction and changes in buyers’ attitudes.
Bridging finance is becoming more prevalent in the residential mortgage space simply because it caters for a variety of short term needs. It is being used to break chains so that homebuyers can move on, perhaps securing a property at lower cost, while they wait for the right offer on their current home. It is a requirement of some sellers in property hot spots that their buyers are chain-free and bridging finance can quickly meet this need.
Bridging is also the ideal solution for adventurous buyers purchasing a ‘doer upper’ that isn’t currently habitable. We are also seeing bridging being used to provide short term breathing space in anticipation of the return of attractive fixed term deals.
Second charge lending is also on the rise as borrowers look to raise capital, using their home as the vehicle, without upsetting historically low, fixed term deals that are still in place. Second charges are ideal for home extensions, home adaptations or as a way to consolidate debt at much higher interest rates.
Where is the residential mortgage market headed? Certainly 2023 will be the year of consolidation as it adapts to what may become ‘new norms’ but in the near term it will return to growth simply because demand in the UK continually outstrips supply.
And with our lifestyles, circumstances and tastes in property changing, so will the growth of specialist residential lending.
Jo Breeden is managing director at Crystal Specialist Finance
