Advisers offering specialist lending as a part of their proposition are in a much more advantageous position to meet the diverse needs of their customer base, than those that ignore this segment of the market. While some brokers choose to focus their efforts advising on more straightforward cases, those offering specialist lending instead broaden their service to accommodate borrowers whose circumstances are a little more complex. These complexities can be caused by customers with poor credit scores, the presence of non-standard property types, convoluted employment contracts and much more. By incorporating specialist lending into your portfolio, you open up yourself and your services to a much wider market segment. It is likely that that is likely to be more appreciative due to your understanding and support in a time when most high-street lenders and building societies turned them away. So, if you’re on the fence about making specialist lending a part of your proposition, or you are an adviser just looking to gain a greater understanding of the service, then make sure you keep reading.
What is Specialist Lending?
It’s more than likely that as a mortgage broker, you will have come across the term ‘specialist lending’ at some point. For those that are unaware however, it is worth knowing exactly what it means to offer the service and to be recognised as a specialist lender. For the average borrower, the process of securing a loan or mortgage can be facilitated through a high-street bank or building society. Specialist lending therefore itself refers to a segment of the market which is occupied by borrowers whose unique circumstances prevent them from arranging a policy with a typical high-street lender. This means they instead rely on financial solutions to be offered by brokers who are more flexible. As stated previously, there are a number of reasons why a customer may be unable to progress with their loan or mortgage application when working with a standard, high street lender with some of the most common hindrances including:
- Poor credit scores preventing customers from passing affordability tests
- The customer is based abroad but is looking to source property or investment in the UK
- The property is deemed as non-standard
- Customer income is not conventional in terms of amount or frequency
What Does a Specialist Lending Portfolio Look Like?
Since flexibility is the primary benefit offered over high street names, a specialist lending portfolio must accommodate a broader range of customers with a more diverse array of financial objectives. To help you get an understanding of what your portfolio might look like if you choose to accept specialist lending cases, we will examine some of the major solutions offered by these types of lenders.
Bridging loans are a short-term specialist lending solution that offers property investors the funds to complete purchases when there are time constraints present such as with auctions and bidding wars. The loan essentially acts as a ‘bridge’ so that the loanee can meet payment deadlines and successfully complete purchases in the short term. The loan is then paid off once a standard mortgage policy is arranged.
The complexity of arranging a semi-commercial mortgage lies in the fact that the property looking to be purchased features both commercial and residential components. Properties that often fit this mixed-use criterion include pubs featuring residential accommodation, retail units with flats located above and residential homes with dedicated office space. To purchase this type of property, a semi-commercial mortgage is required, which features unique rates and arrangement methods. As semi-commercial mortgages are still treated as commercial mortgages, it’s your job as an adviser to assess your customer’s business plan and obtain the best mortgage policy that suits them.
While most Buy-to-let applications can be completed without the need for a specialist lender, some landlords will need extra attention applied to their cases. Typically, a landlord with more than 4 and less than 15 properties held in their name, or in the name of a limited company owned by them, will require a specialist lender application.
Holiday Let Mortgages
Due to the varying occupancy dates and less regular income from renters, holiday lets are ignored by most high-street lenders. This provides a great opportunity for you to reach out and advise on a largely neglected customer base. Additional work will be required on your side when it comes to assessing your customer’s projected income, the affordability of the holiday home, tax reliefs and more.
Who are the Customers of Specialist Lenders?
A customer requiring a policy to be arranged via a specialist lender can be driven to do so by a number of variables, contributing to a number of interesting situations. Just some of the more common customer types you might encounter as you offer this service includes:
- Portfolio landlords
- Commercial Opportunities
- Contract workers
- Employed Clients
- 50/50 Clients
- Weird and wonderful property types
- Adverse Clients
- High Net Clients
What Offering Specialist Lending to Customers Means for Your Business
Operating as a specialist lender means taking on some additional work, especially when it comes to some of the really convoluted cases you might encounter, but that doesn’t mean it hasn’t got its fair share of benefits. The most noteworthy of which is the fact that you are making yourself available to a large section of the market that isn’t being supported by many of your competitors. Coupled with the fact that these customers will have struggled to find an adviser willing to accept and support their case, your customer base will be larger in scale and more likely to return for repeat business even if it is not a specialist lending case.
The market for customers in need of specialist lending advice is actually one that is continuing to grow, with its expected value reaching up to £16 billion in the next few years. Getting your foot in the door now and getting to grips with the sector and what it means to operate as a specialist lender might offer some short-term complications but will be sure to provide some long-term benefits also, according to most forecasters. Establishing a solid customer base and laying the groundwork with lenders in the segment will mean you have the upper hand down the line when your fellow mortgage advisers finally decide to follow suit and do what you have been doing for years at this point. By that time of course you will already have grown your portfolio through referrals and additional income streams achieved by taking on unique commercial opportunities.
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