Expert on the state of the specialist market
The specialist market continues to ebb and flow with more borrowers struggling to get the deals they need through traditional borrowing means. Whether they are self-employed, in later life, or using different sources of income, the reliance on specialists has surged – but how long is this likely to continue for?
Mortgage Introducer reached out to an expert to find out.
How is the specialist mortgage market performing?
As rates start to level off, Stephen Hogg (pictured), chief operating officer at West One Loans, expects the flow of activity across the entire specialist market to increase.
“Bridging has always been quite resilient to market changes as it is a route for borrowers to pursue investment opportunities when confidence is high, and a great source of liquidity when times are tougher,” he said.
As for the second charge space, Hogg added, it remains positive as it offers the chance to consolidate expensive, unsecured debts.
“Hopefully as inflation and rates stabilise, cost-of-living pressures will ease for consumers, but second charges remain a great product to repair affordability during tough times, and also a great way to unlock home equity for more positive reasons, like home improvements,” Hogg said.
Development loans, he added, also remain a strong bet because as a country we desperately need to build more homes, and there is no sign of that changing any time soon.
As for buy-to-let, Hogg said that the market is going through a period of transformation.
“Major tax changes and other economic factors seem to be driving concentration towards more largescale professional landlords who require the support of specialist lenders and underwriters, and fewer smaller single property landlords,” Hogg said.
Ultimately though, he believes that the UK rental market will continue to provide opportunities for landlords.
How has the specialist market maintained its performance?
Ultimately, Hogg believes the UK mortgage market is nothing if not dynamic and highly competitive.
“What happens during periods of volatility and economic stress is that business models are tested, risk increases, and underwriting requires even more care than usual,” he said.
Businesses, both brokers and lenders, Hogg said, that are over-reliant on a single product may find things challenging.
“However, as affordability pressures increase the underwriting picture gets more complex as there is more noise around customer circumstances and, for lenders relying on automated credit models, scorecards are inherently less predictive around major inflection points in the cycle,” he said.
In this situation, Hogg said high street lenders can be tempted to pull back from the market as they trim credit appetite and more cases fall out of their automated lending models as a result.
This, he added, then plays into the expertise and skills of specialist lenders, whose stock in trade is practical, solution-led credit analysis and decision-making, which takes into account borrowers’ individual circumstances.
What is the outlook of the specialist market in 2024?
The future for specialist lending overall, Hogg said, remains bright, but he is beginning to see a polarisation of businesses across the market - dividing the stronger and weaker.
“That is because the decisions management teams have made over the last two years or so are coming to fruition,” he said.
Lenders which hedged insufficiently ahead of rate rises, or which persisted in lending at uneconomic rates of return in benign credit conditions, or which undervalued long-term liquidity, Hogg said, have been experiencing some stress over the last few months.
Conversely, he added that lenders which hedged their rate risk intelligently, stockpiled liquidity, and tenaciously priced for risk in all areas are very well placed to grow their lending share now.
“Inevitably this will play through into lending capacity and lending appetite as more constrained lenders have to pull back a little,” he said.
Hogg believes any gap in supply will be immediately filled by stronger lenders who will continue to compete for volume.
“The current short-term volatility and disruption will hurt some market participants more than others, but ultimately the industry will continue to go from strength to strength,” Hogg said.
How have you seen the specialist mortgage market performing at present? Let us know in the comment section below.
