We’re on the cusp of significant change in the specialist lending industry following the pandemic and the waves of disruption it has caused.

Looking back over my 40-year career, there have been other defining moments that have shaped the market in important ways and set the tone for the future of lending. From these moments, we can attempt to learn and predict the course of the specialist lending market in the years to come.

As it did for all corners of the global economy, the 2008 financial crisis had long-lasting repercussions for the industry. With the lax lending standards and lack of regulation fuelling the US housing bubble to burst, it’s unsurprising that far-reaching regulatory change across the globe was a big outcome of the market crash.

The role of the specialist lender is incredibly valuable, and it is here to stay

The Mortgage Market Review had a significant impact on the sector. Doing away with the high-risk lending that had become more commonplace prior to the financial crash, it instigated much stricter regulation in the years following, centred around how lenders assessed affordability of customers, identified risks in their credit profiles and determined their qualification for a loan.

But, on a broader scale, it also delivered a pivotal mindset change. It became far more important for lenders to weigh the evidence when making decisions, and it was essential for borrowers to prove affordability in order to access a suitable loan. Where there had previously been a big focus on taking out an endowment mortgage, this shifted so that now we take into account a range of individual factors before an agreement is made.

With work/life patterns evolving, it will be critical to keep up with the pace of change

While some argued that the rules were too draconian at the time, others said they hadn’t gone far enough. Certainly, the tightening of regulation and the shift in mindset set in place a much stronger foundation for the lending market than there had been amid the housing boom prior to the crash.

Here to stay

Looking to the future, I have no doubts that the role of the specialist lender is incredibly valuable, and it is here to stay.

While traditional lenders are geared to the masses, there’s an important place for the individual approach. Automatic decision making, credit scores and traditional lending frameworks don’t always suit the individual borrower, many of whom require personalised advice and specialist underwriting.

As the dust settles after the initial shock of Covid-19, this need for an individual approach to lending is only going to strengthen.

Fewer people than before will fit the ‘One size fits all’ bracket

The pandemic impacted, and in many ways polarised, people’s finances across the UK. Many individuals were put on furlough for several months, resulting in a long period of reduced income. Others faced job losses or salary cuts, putting them under pressure financially, and many made the most of government support including payment holidays.

Of course, the financial impact of the pandemic has been disproportionate, with a significant percentage of UK citizens finding themselves with more savings during the past two years as their outgoings reduced. A further trend has been the boom in business start-ups, amounting to a greater proportion of people who are, at least partly, self-employed.

As the dust settles after the initial shock of Covid-19, this need for an individual approach to lending is only going to strengthen

The self-employed market will be a big one to watch in the medium and long term. As more people turn to alternative careers, having the ability to access flexible and affordable lending options will become more important, and there’s a role for specialist lending to fill here.

Whatever the circumstances, it’s clear we are now dealing with more complex income, careers and general finances. There’s therefore a sizeable part of the market that won’t be represented by traditional lending; where the ‘Click and collect’ model won’t fit.

The self-employed market will be a big one to watch in the medium and long term

This has all accelerated the need for specialist lending. Lenders will need to take into account more novel financial circumstances and credit histories, and fewer people than before will fit the ‘One size fits all’ bracket, turning them away from the high street when they want to borrow.

With work/life patterns evolving, it will be critical to keep up with the pace of change, shapeshifting to meet different demands and circumstances. I am looking forward to seeing how the industry evolves in the years to come.

Keith Street is chief commercial officer at The Mortgage Lender and will retire at the end of this year