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Niche work if you can get it

The mainstream mortgage market is easy to grasp. It services people with straightforward housing needs who have financial profiles that can meet regular commitments such as utility bills, monthly credit card repayments, the mortgage, a car loan or the many other minor payments such as satellite TV and mobile phones.
The products offered by lenders to meet the needs of these people are again straightforward, offering a mixture of features and competitive rates. Easy for lenders, borrowers and mortgage brokers – because this category of borrower satisfies the lender on the level of risk involved. Match the borrower to the right mortgage and away you go.
But life is not always that simple. Sometimes, the tidy pattern of life gets disrupted and borrowers move over from the mainstream category into the niche market.
Likewise, once you move outside the easy to understand parameters of mainstream mortgage lending, you come across a sizeable portion of the population who, through circumstances and requirements, cannot meet rigid criteria but would still like access to a mortgage like everyone else.
Faced with meeting the needs of such a borrower, the challenge for mortgage advisers is to understand just what sort of niche the non-mainstream client falls into. Is it full status or non-status? Adverse credit, impaired credit, or sub-prime? Is the applicant employed by one employer, self employed or doing a few different jobs?
This is not made any easier by the fact that so many descriptive terms are used for borrowers in the niche mortgage market without any clear definition of what each of them specifically means.
Traditionally, market research organisations such as Datamonitor have brought all niche mortgage lending under one umbrella called non-status.
This fails to distinguish the market which caters for those with a history of credit problems and those who merely have non-standard earnings profiles or property needs but this only serves to prolong the confusion.
I would suggest that a simple way through this maze is to have a clear idea of where the three real distinctions lie – mainstream, credit-impaired niches and prime credit niches.
The large mainstream sector, at one end of the spectrum, is well understood. Sitting at the opposite end, you will find borrowers normally catered for by the traditional sub-prime lenders. Here, in what I have categorised as the credit-impaired niches, people will have been turned away by mainstream lenders.
The easy credit society we live in is quick to offer access to easy borrowing but very unforgiving when people overstretch themselves financially and start to miss payments.
The figures speak for themselves. The Government’ recently published Social Trends Survey reveals total consumer debt in the UK (excluding mortgages) stands at £115bn and every year more than one million people have a county court judgment registered against them for failing to pay what they owe. Bankruptcy and individual voluntary arrangements are on the rise, with the 2000 total of more than 29,000 being the highest since 1994.
Specialist sub-prime lenders have cornered this market, offering people the opportunity to access a mortgage that is priced to take account of the higher risks involved but nonetheless also allows people the chance to buy or remortgage their home, clean up their credit act and give them an opportunity to return to the mainstream for the types of mortgages available to all.
These specialist lenders have developed the underwriting expertise and administration structures which enables them to operate successfully in this market sector.
My third category, and the one in which Verso operates, lies in the middle of the mortgage spectrum and deals in what could be termed prime niches. This section of the market is also sometimes referred to as the non-standard or specialist sector. For mortgage advisers, there are many opportunities within the prime niche area to generate business as long as they are clear on the definitions involved.
When trying to define and work within prime niche mortgages, the most important element is to understand the borrower type. This understanding comes from three main areas.
First, for most lenders, the term prime is used to describe the good quality financial status of the applicant which will be reflected in favourable credit status reports and a credit score that enables a loan to be offered.
Some people may well be on the margins, where their financial history can point to one or two slight problems which are just enough to prevent them from accessing mainstream lending options. It is these people that prime niche lenders can help and it is well worthwhile for mortgage advisers to keep familiar with the level of slightly irregular credit that can be accommodated by the lenders serving the prime niches.
Second, some borrowers may have no credit problems at all but do have irregular sources of income. Currently, there are just over 3.1 million self-employed workers in the UK and this is the tip of the iceberg when it comes to the sorts of income profile which may not fit the lending criteria of the mainstream lenders.
Alternatively, they may be company directors whose income comprises part salary and part dividend payment. Again, it is a matter of piecing together the borrower’ story and targeting the type of lender who can see the bigger picture behind such circumstances.
The third main category of prime niche borrowers are those who have “unusual” lending requirements because of the type of property they want to mortgage.
For example, they may want to invest in a second property to generate income or want to move house but are unable to sell their existing property.
Buy to let or rent and buy mortgages can provide a solution for people who would have trouble taking their case forward via the mainstream.
Another example of unusual lending requirements would be a professional couple or individual wanting to move up the property ladder who may need an enhanced income multiple to enable them to buy a property.
It is clear from the three scenarios outlined above that the best way to make the most out of prime niche mortgage business is to look behind the borrower’ story, make a clear assessment of what they require to meet their needs and place the case with a suitable lender which has experience in dealing with such cases and can offer the best product to match their requirements.


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