Although UK lenders say specialist buy-to-let products deliver stronger margins and lower risk, the borrowers driving demand in the sector are still underserved, research from Finova shows.
Among lenders offering specialist buy-to-let products, one in five (22%) said holiday lets deliver the highest margins, followed by limited company buy-to-let and HMO mortgages at 20% each and commercial buy-to-let at 15%.
Yet 44% of lenders report that borrowers with complex needs – who are likely to choose a specialist buy-to-let product - are the most underserved group in today’s modern market, ahead of first-time buyers (39%) and landlords (34%).
The findings indicate that specialist buy-to-let has become a resilient part of many lenders’ portfolios rather than a risky niche. Lenders are more likely to say default risk is lower on limited company (48%), HMOs (56%) and portfolio landlords (43%) than on other types of lending.
Brokers agree: a little under half (47%) also perceive default risk across specialist buy-to-let products to be low.
This confidence is further demonstrated by the market’s positive predictions for specialist buy-to-let and its future growth potential. Lenders expect the strongest growth to come from HMOs and multi-unit blocks (38%), limited company (37%) and holiday lets (36%).
Brokers, by contrast, are most likely to see the biggest growth potential in green mortgages (33%), followed by holiday let mortgages (32%) and limited company products (31%), suggesting a slight difference in opinion on where future demand will be strongest.
Complex borrowers face the toughest hurdles
At the same time, the research highlights that the borrowers most associated with specialist buy-to-let are often the hardest to serve – meaning forecast gains may not be realised, leaving lenders and brokers alike out of pocket.
Lenders say borrowers with complex needs are the most underserved segment in the mortgage market (44%), closely followed by expat or overseas borrowers (43%) and holiday let or multiple property owners (43%).
Adding further colour to the picture, brokers report several challenges in placing specialist cases, citing problems securing finance for low EPC properties (39%), complex documentation for corporate and limited company structures (37%) and limited product availability for complex or non-standard properties (34%).
One possible roadblock for the specialist buy-to-let market is the relatively low number of UK lenders – less than one in three (29%) – that have an active separate originations platform for specialist lending.
However, as much as 36% of lenders are actively considering introducing a separate platform, and 23% would consider exploring the option in future.
Hamza Behzad, business development director at Finova, said: “The growth of the specialist buy-to-let market is too significant to ignore. What was once a niche segment is now a core part of many lenders’ strategies — but the nature of the customer has changed dramatically.
“Today’s specialist borrowers are more complex, and legacy systems weren’t built to support the nuanced affordability assessments or KYB/KYC checks they require. Our research shows that while these products offer stronger margins and lower risk, many lenders are still relying on rigid processes that can’t keep up.
“To grow sustainably, lenders need to adapt. Those that invest in better tools and work closely with brokers to serve these customers more effectively will be best placed to lead the next era of specialist lending.”
