"We can pretty much predict that more borrowers will fit the specialist lending brief and the need for specialist mortgage loans is likely to grow."
Given the nature of today’s mortgage market, it’s important not to make kneejerk decisions which might feel right now but ultimately come to represent a serious misjudgement with the benefit of hindsight.
For example, a few weeks ago we held a webinar in which one of the questions posed on the topic of specialist lending activity, asked whether an adviser should simply ignore specialist lending in the future.
The question got me thinking about the mindset that certain advisers might have been in at the start of the lockdown, and hopefully how this has been reshaped in recent weeks as we’ve seen a growing number of lenders not only returning to active, but also non-mainstream, lending.
It won’t take a genius to work out that the demand for specialist lending is not going to go away anytime soon; in fact, even with the support available to existing mortgage borrowers with payment holidays and the like, it is extremely likely that the UK will come out of this lockdown period with a far greater sea of specialist borrowers requiring this type of mortgage finance. And help from advisers.
In that regard, it was interesting to read Knowledge Bank’s most searched for terms during March, four out of the top five which could be said to have a specialist lending bent, with ‘maximum age at end of term’, ‘interest-only’, ‘self-employed with one years accounts’ and ‘defaults registered in the past three years’ all understandably coming behind ‘Covid-19 mortgage payment holidays’ which topped the chart.
The fact that advisers are still clearly looking at specialist lending criteria means that existing clients already fit this particular bill but it seems almost nailed-on that this demographic will grow. What about those borrowers who do end up missing a car or loan payment during this period? What about those employees who move unfortunately from a furlough period to being temporarily out of work? What of those who take this time to decide, either by design or necessity, that they need to work for themselves in the future? What about those who simply cancel direct debits without contacting the lender or provider concerned?
It may well be interesting to see - post-lockdown - how the availability of mortgage lending for these types of borrowers is impacted, perhaps at a time when demand for specialist mortgage advice grows and more individuals fit this particular bill.
In recent years, borrowers have seen their product and lending options grow as more mainstream lenders branch out into areas traditionally seen as specialist. Given where we are now, how certain are we that these mainstream players will want to return to these sectors? Especially when they have been dealing with large-scale mortgage payment holidays, furloughed borrowers, and far greater requests for business support as a result of the lockdown.
Plus, of course, we mustn’t forget that this type of specialist lending requires more specialist, manual underwriting. Will those mainstream operators who have become more open to specialist lending return to type and be more risk-averse in the future? Will they feel comfortable, or even attempt, to push these cases through a more automated procedure?
We can’t yet know the answer to that, but we can pretty much predict that more borrowers will fit the specialist lending brief and the need for specialist mortgage loans is likely to grow. It may even be already happening, as the Knowledge Bank data suggests, and it certainly means that advisers who are considering ‘sacking off’ the provision of specialist advice would perhaps be wise to hold their counsel and wait out this particular period.
It’s possible to anticipate and see a future where the need for specialist advice grows and grows, and certainly from a lending point-of-view, it’s going to need a reassessment from many about whether they are equipped to continue operating in this sector.
Borrowers – especially those of the specialist variety and those who will slip into this bracket in the future – are going to need their advisers more than ever. As a nation we are likely to fall back in love, and value, the experts we have – mortgage advisers certainly fill this bill and they should be marketing themselves accordingly in order to provide that expertise.