Put simply, specialist lending is arranged using a ‘specialist lender’ as opposed to a high street bank or building society. The reason your client might opt for this solution comes down to their financial circumstance at the time of application and their specific mortgage requirements.
Specialist lenders often adopt a more flexible approach to their lending. They tend to assess on a case-by-case basis, and this helps to eliminate the dreaded ‘the computer says no’ response that your client might otherwise receive from a high street lender.
Specialist lenders will carry out credit checks rather than credit scoring. This can be a redeeming feature for any would-be mortgagor with blemishes on their credit file. Adverse credit will show up on a credit report for six years before it ‘drops off.’ Often the underwriter will ask for an explanation as to how the blemishes came about in the first instance. This allows the borrower the opportunity to provide some background to their current credit status – sometimes it genuinely isn’t their fault that the blemishes exist.
Reasons why a specialist lender may be more suitable:
- Property is non-standard e.g., has deck access, timber framed construction, or concrete panels
- Adverse credit e.g., CCJs or recent defaults (high values)
- Age at the time of completion e.g., 75 – 85 (into retirement)
- Number of applicants e.g., three or more
- Income type e.g., includes certain benefits
- Location of the property e.g., Outer Hebrides (Scotland)
- Type of employment contract e.g., agency workers
This list is by no means exhaustive, but it shows the kind of range that can apply. There are many more reasons why a specialist lender can be the best solution for the client.
Higher rates and fees
Specialist lenders tend to offer higher rates and will likely charge higher fees – this risk-based mortgage pricing is used to protect the lender against default. The higher interest rate charged to borrowers with lower credit quality makes up for the increased risk of lending them money. In theory, this practice benefits borrowers with a better credit history because it allows them to obtain mortgages at a lower price – many specialist lenders offer a tiered range of products to reflect this.
Specialist lending solutions
Bridging loans
Bridging loans are a great short-term solution if there are time constraints involved. Auction purchases where the sale must complete within a short period, are a great example. The ‘bridge’ is designed to bridge the gap and make the purchase possible in the short term. The ‘bridge’ is then paid off with a standard mortgage, thereafter.
Bridging loans are more commonly used to purchase a BTL property that is not in a lettable condition.
Commercial and semi-commercial mortgages
Commercial mortgages are suitable for many types of properties where business interests exist. The mortgage is secured by a first legal charge on your business premises. This can be anything from a small timber lodge to a shopping centre. The specialist lender will also offer commercial investment mortgages for a property that will be let out.
Complex buy-to-let applications, HMOs & MUFBs
Portfolio landlords with more than 4-15 properties either held in their name or within their limited companies, will often need to apply to a specialist lender. Whilst some high street banks place restrictions on the number of properties your client can have in total, others won’t cater to portfolio landlords at all.
Mortgages for holiday lets
Holiday lets present too great a risk for most high street lenders. These lenders prefer to ‘stress test’ using annual returns generated via ASTs (assured short-term tenancy agreements). Income associated with a Holiday Let can be more erratic and unstable – that said, there is often the potential to generate more income annually with good seasonal occupancy levels and higher accommodation fees.
If you feel that your client’s circumstance is unique, specialist lending is the likely solution! contact Evolve Commercial Finance and one of our specialist advisers will be happy to help.
