With interest rates at low levels, and possibly dropping even further, the non-conforming and sub-prime markets have provided ripe opportunities for lenders to come up with a wider range of products – including Right-toBuy, self-certification, discount and fixed rates – and competitive interest rates that in some cases are very close to what is available on standard mortgages. One in four lenders now operates in the sub-prime market so it is a sector that no adviser can afford to ignore, unless they want to turn away potentially a quarter of new business prospects.
To date, dealing in the sub-prime market has sometimes stigmatised lenders, borrowers and intermediaries. However, there are many situations where borrowers cannot find a loan on the high street, perhaps through no fault of their own, or are well on the way to repairing their credit history and don't need to be treated differently from other customers. In fact, if we do that, we may lose them altogether – and this year's sub-prime borrower should be a standard borrower two or three years down the line, so why lose that future business?
Lenders are beginning to recognise this and over the last couple of years we have seen many high street lenders moving into the non-conforming market, which is getting more and more competitive. Given the products that are available now, intermediaries should not let themselves fall behind what is happening in the market. We believe this is a sector of the market that cannot be ignored and have set up a new division, Park Row Specialist Lending, along with The Mortgage Placement Company, to provide dedicated expert advice to non-conforming borrowers.
This is done seamlessly through one adviser so we are actually providing an enhanced customer experience. Customers will not feel they are being dealt with as an inferior client by being passed on to a labelled sub-prime adviser.
By setting up a dedicated advice or packaging centre dealing exclusively with borrowers in the non-conforming market, advisers can offer a much broader range of products and services to their clients, and diminish the risk of losing a potential client just because they are not accepted by the big lenders. If we are to offer customers quality service and advice this is the way we need to move.
There are many packagers out there who are desperate to get business from intermediaries, but by going it alone or going into partnership to set up an in-house packaging division, advisers can control the processes, shorten the administration chain, increase efficiency and be more cost-effective, making things easier for customers and lenders.
We can also add our own enhancements, for example we have produced an online mortgage wizard facility that allows borrowers to browse through different mortgages on offer before making an application.
Kevin Paterson is managing director of Park Row Independent Mortgages
The specialist mortgage market has been something of a revelation in recent years. Although specialist loans have been available since the early 1980s, it is only the past five years that have seen an explosion in the market.
This is due to two main factors – new lending entrants to the market and the reclassification of loan and customer types. How many remember the old days of the 'one in four', that magical ratio of customers who would be refused credit from mainstream lenders?
One development best described as ironic is the emergence of subsidiary companies of these very same mainstream lenders to bravely help out the one in four. Remind me again, who gave them this tag in the first place?
The one in four principle started as a result of changing working patterns, more divorces, more single-person households, past credit problems and other areas that were seen as risky by the mainstream lenders. The opportunity for intermediaries to develop profitable business in those areas was therefore created by the new lenders.
What has emerged is the distinction between niche or specialist products and those that are sub-prime. A self-cert mortgage is not necessarily sub-prime but it can be, and now that borrowers and intermediaries realise that either can be catered for, the mortgage market has an 'All are welcome' sign above the door.
What has also become clear is that innovation in product design and reclassification of risk profiles has opened the door for many borrowers who would previously not have fitted any profile. Also, the experience of some of the first firms into the market with relation to redemptions and defaults have given credit and risk departments in other lenders the opportunity to reassess the exposure/profit relationship.
As a result, the sophistication of product offerings across the market has widened although many lenders choose to remain in specialist areas and niche markets.
The growth of the specialist market is also a result of increasing consumer debt, rising bankruptcy figures and the growth in niche markets such as self-cert, Right-to-Buy or buy-to-let. And there are now very few situations that would result in no mortgage options at all for consumers.
This has provided a growing opportunity for mortgage intermediaries. The more options in the market, the greater the need for professional guidance. Intermediaries have been a huge factor in growing the market by opening new distribution channels for lenders and also playing their part in product development through discussion and feedback.
There will certainly be some rationalisation among lenders over the next few years, and with so many players in the market offering loss-leading products, not all are guaranteed to survive. If the specialist market descends into a price war it will be interesting to see how those without access to big balance sheets manage to keep pace.
Richard Hurst is communications manager at Future Mortgages