The secret mortgage deals not on the high street
Taking out a mortgage used to be so easy. You could simply walk into your local bank, ask for a meeting with the manager and take it from there. But the financial crisis of the last decade caused the big high street brands to pull back from the market, with most major players now only lending to the most creditworthy of customers.
That means that if you've got a less than perfect financial history or simply can't raise a large deposit, you could be left out in the cold.
But a raft of smaller lenders has stepped in to fill the gaps and by ditching the high street you can uncover a 'hidden' mortgage and potentially unlock the property of your dreams.
Many of these new banks have launched in the past five years and, while they are not yet known among the wider public, they have been busy growing their share of the mortgage market as the big banks retreated.
"Banks reined back on lending when the financial crisis struck, favouring borrowers with excellent credit histories, straightforward employment and hefty deposits," says Jonathan Harris, director of mortgage broker Anderson Harris.
"But several new banks have launched, some of which are so new that many borrowers haven't heard of them."
While big lenders had started to open up in the past couple of years, the arrival of the Mortgage Market Review in April forced banks to further restrict those who they lend to.
Customers are now being asked more about their finances than ever before and those without a squeaky clean credit history can struggle to access finance under the new regime.
"Tighter criteria has been entrenched in the market through the implementation of the Mortgage Market Review," David Hollingworth of mortgage broker London & Country explains. "This seeks to ensure that lenders don't return to slacker lending policy and rightly focuses on ensuring a mortgage will be affordable now and in the future.
"Although the big high street lenders are still very much worth a look, borrowers should bear in mind that there are other, newer entrants that can offer something different."
They can also now offer a lifeline to borrowers who have been affected by the disappearance of subprime mortgages. These were loans specifically for borrowers with blemishes on their credit history and unable to take out a regular mortgage.
"After the crisis, self-certification mortgages, where borrowers stated their own income, practically vanished overnight, as did high loan-to-value mortgages and subprime deals aimed at those with County Court Judgments," adds Harris.
"While nobody wants a return to the days of too easy credit, many people don't fit standard criteria yet are not a bad risk. Someone who forgot to pay their mobile phone bill once may find this makes it difficult to get a mortgage at a mainstream lender."
On your own
Hollingworth says self-employed borrowers are increasingly turning to specialist lenders, with brands such as Kensington and Precise Mortgages both targeting these customers. Precise launched its first residential mortgages in November 2010, targeting borrowers who had been otherwise left behind, while Kensington, a survivor from before the crisis, has also focused in on this area.
"After the crisis, self-employed borrowers found that they now required more proof of their income with many lenders wanting to see at least two years' history," says Hollingworth.
"Those borrowers who had turned self-employed more recently found options limited but this is where specialist lenders have been able to help. Lenders such as Kensington and, more latterly, Precise will both consider those with as little as one year of accounts.
"Similarly, they have developed more flexible approaches to contract workers, an employment type that has only become more common in recent times."
Would-be first-time buyers have also found it difficult to raise a deposit and while government schemes such as Help to Buy have tried to make things easier, they are not suitable
Guarantee mortgages can allow parents to assist their children without gifting them a deposit, instead they place some savings into a special account or use their own property as security.
"Smaller lenders can provide options for those struggling to raise a deposit," says Hollingworth. "Aldermore is one of the the only lenders to have a product on offer for those looking for a 100% mortgage. Far from being a return to looser lending, it requires the help of parents who give a guarantee in the form of a collateral charge on their own property. The Family Building Society is another smaller lender offering this type of option for those with small deposits."
Small is beautiful
Building societies have also had something of a resurgence in recent years. The demutualisation of Halifax and Northern Rock in the 1990s looked like signalling the end for the old-fashioned building society but recently mutuals have been taking a greater share of the mortgage market.
"It can be easy to forget that there are 44 building societies, hundreds of credit unions and numerous ethical challenger banks out there offering competitive rates, exemplary customer service and innovative, convenient ways to help you manage your money or buy a home," says Hilary McVitty of the Building Societies Association.
Many building societies now offer mortgages across the UK, so being located in Sunderland is no barrier to taking out a mortgage with the Skipton.
But some mutuals only offer mortgages to certain people or on specific types of properties. Ecology Building Society, for example, will only lend on environmentally sustainable properties, while the Teachers Building Society, as its name suggests, offers special products to those working in the education sector.
Dorset-based Teachers and several other organisations also have special deals for people located in their local area, so make sure you contact your local building societies as part of your mortgage search.
"Often, building societies can assist those with slightly out of the ordinary needs – self-builders for example – with flexible, simple products," McVitty adds.
"Some operate locally, others, however – regardless of location or size – offer products UK wide. This means that everyone has the opportunity to experience a personal, approachable service."
Something most of these smaller lenders have in common is the way they decide whether to approve a mortgage application. High street banks now rely on computers and credit scoring to choose which customers to lend to. But this can mean borrowers with just a minor blemish on their records, such as a small unpaid bill years previously, are denied credit.
Smaller lenders still underwrite each case individually and a human decides whether to approve the loan or not, much like the bank manager in years gone by.
"With some high street lenders reverting to a 'computer says no' approach in the wake of the credit crisis, smaller lenders sought to offer something different by making more individual decisions," explains Hollingworth.
"Smaller building societies, such as Hinckley & Rugby or Market Harborough, have also realised that their method of no credit scoring and a personalised approach to underwriting can be useful.
"Metro Bank has developed a proposition based heavily on service and an ability to offer flexibility according to the client's circumstances."
Many of these lenders offer products solely through a mortgage broker, who will be able to scour the market and help you choose the best deal possible.
A broker will also know which lenders will be most receptive to your specific circumstances and which have the best service and products.
This is particularly important for high-net-worth borrowers and those with larger incomes. Specialist lenders and private banks will still offer interest-only products to these customers, something high street brands no longer do.
"With the private banks there is no specific set criteria, provided the borrower fits the bank's profile regarding underlying wealth," says Harris. "While the mainstream banks work off restrictive and inflexible criteria, private banks often have an ability and willingness to be more flexible. For example, they are much more willing to consider interest-only borrowing than high street lenders.
"Across the board, specialist niche lenders are plugging the gap left by mainstream mortgage providers. A broker will know the latest entrants and the one most suitable for your particular circumstances."
However, remember to do some research of your own as not all lenders offer products through brokers and some have cheaper rates when dealing direct. Brands such as Nationwide Building Society and HSBC will also offer cheaper rates to those who already have a current account.
If you have been turned down for a mortgage at your own bank or have circumstances slightly different to the norm, all hope is not lost.
"Smaller lenders have been major players in the mortgage market over the past few years and they understand how difficult it can be to get on the property ladder," says McVitty.
While you may not have heard of some of these lenders they are fully regulated by the Financial Conduct Authority, giving you have full peace of mind.
So if you are self-employed, have special circumstances or have simply struggled to get a mortgage elsewhere, take a look beyond the high street and you could be surprised at what you find.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.