A one-size-fits-all approach is no longer appropriate if you want to secure the most suitable mortgage for your client.
As employment patterns change, specialist lending is becoming the new mainstream. As a result, some lenders are responding with increasingly competitive and accessible specialist mortgage products.
So, what are the changes that are driving the growth in clients with more specialist circumstances and how could this impact your business?
Growing population, increasing diversity
The UK population is set to reach 74 million by 2039, which is an increase of more than 1,000 every day. With this growing population comes increased diversity in the credit and income profiles of mortgage applications. The FCA has stated that it aims to stimulate a culture of financial inclusion, which means catering for these diverse circumstances.
The rise of alternate employment
Those who are self-employed and contractors now account for more than 15% of the workforce, growing by 1.5 million between 2001 and 2017. This trend looks set to continue with a recent report by Deloitte revealing that 43% of millennials intend to leave their jobs within two years and amongst those, 62% expect to take on freelance work as an alternative to full-time employment.
At Pepper Money, we looked at our own residential completions last year and found that the most common characteristic shared by our customers was the requirement to consider additional income as part of their application – 57% of all residential completions were categorised as complex income.
With over 8.5 million part-time workers as of January 2018, up from 7.9 million in 2010, we will continue to see a rise of those who frequently rely on other sources of income as part of their mortgage application.
As of July 2018, outstanding unsecured consumer debt stood at £213,470 million, which is a record high, according to official figures from the Bank of England. With this quantity of credit, it is not surprising that an increasing number of consumers will experience a blip on their record.
Consumer demand fuelling the specialist market
A report from IMLA stated that specialist mortgage lenders’ gross lending has grown by 19% per year since 2009. Despite this growth, there remains a common misconception that placing a specialist case is more time consuming.
At Pepper, our experience is that this is no longer the case, so we carried out research amongst a group of 99 brokers to find out the truth – how much do brokers write, how long does it take them and how much do they earn from each case?
For the purpose of the research, specialist lending was defined as covering those with a poor credit history, having irregular income, older borrowers or those without permanent rights to reside in the UK.
We found that the average business split between mainstream and specialist mortgages in 2017 was 85% to 15%, while this year, brokers expect to write a greater amount of specialist deals, with an average split between 83% to 17%.
Time and money
Though brokers spend significantly longer time on specialist cases, on average an extra two hours and 45 minutes, this time is often spent unsuccessfully trying to place the case with a high street lender, rather than going straight to a specialist lender.
And while a specialist case may take longer, it could earn you an extra £14 for every hour of your time. This extra income is the equivalent to the median hourly rate for full-time employees in the UK, which is £13.97, according to Statista. In fact, the average hourly income for placing a specialist mortgage application compares very favourably to some of the best paid jobs (see box).
Grab the opportunity
As your clients’ circumstances grow increasingly diverse, you will need to meet their requirements by working with a broad range of lenders. This approach is good news for your clients, and great news for your business.
We are all specialists now, so grab the opportunity.
Nine of the best paid jobs by mean average hourly rate paid to employees
|Best paid jobs||Average hourly rate|
|IT and telecommunications directors||£34.65|
|Managers and directors in mining and energy||£35.38|
|Advertising and public relations directors||£37.80|
|Financial managers and directors||£39.71|
|Marketing and sales directors||£40.41|
|Financial institution managers and directors||£43.52|
|Chief executives and senior officials||£50.42|
|Aircraft pilots and flight engineers||£53.33|
Source: ONS data featured in The Week, November 2014