The benefits of specialist mortgage lenders
Many borrowers are turning to specialist mortgage lenders like Pepper Money, including people looking to buy a shared ownership home. Rob Barnard at Pepper Money explains their role
Many borrowers are turning to specialist mortgage lenders like Pepper Money, including people looking to buy a shared ownership home. Rob Barnard at Pepper Money explains their role (sponsored) #UKhousingSponsored by:
In today’s gruelling financial landscape, would-be borrowers who are financially capable and creditworthy are being locked out of the housing market, simply because they don’t fit the criteria of high street lenders. As a result, many are turning to specialist lenders for mortgages.
However, even though the services of specialist lenders are increasingly in demand, their role is still misunderstood in some quarters. Inside Housing talks to Rob Barnard, intermediary relationship director at Pepper Money, to find out how these lenders operate, why they shouldn’t be confused with ‘adverse lenders’, and why he believes shared ownership is a good option for first-time buyers in the current climate.
What’s your assessment of the current housing market?
The dream of owning a home feels increasingly out of reach for many. House prices have continued to grow, but wages haven’t kept up with them – and the cost of renting makes saving for a deposit even harder. A recent report from Pepper Money shows that an average first-time buyer deposit is around £68,000, which is a scary figure. In the London area, that rises to over £150,000.
There are so many challenges for anyone who wants to get on the housing ladder. It’s why we think shared ownership should be an option for more people, but it’s a segment of the housing sector that’s often overlooked. So we’ve published a white paper – A Vital Bridge to the Housing Market – to raise awareness of shared ownership as a tenure, and to highlight our involvement in shared ownership lending.
Are more borrowers turning to specialist lenders?
They are. The pressures on households today are forcing so many people into more complex financial solutions, not because they’re irresponsible, but because life has changed. That traditional, linear model of steady employment and predictable career progression no longer reflects reality. The trouble is, if you have incomes from multiple sources, or if you’re self-employed, or if you have a credit blip because of the late payment of a utility bill, the rigid approach of high street lenders simply won’t accommodate you.
Their computer will say ‘no’ when you ask them for a mortgage. That’s where specialist lenders come in. We think it’s not right or fair for creditworthy borrowers to be disfranchised from the housing market because of a blip. It’s why ‘just-off-high-street’ is such a great phrase. It sums up our customers and the services we provide for them.
There’s often confusion between ‘specialist’ lending and ‘adverse’ lending. Can you explain the difference?
‘Adverse’ is often shorthand for ‘bad risk’. But our customers are not bad risk. They’ve simply had a temporary setback which, unfortunately, makes them ineligible to high street lenders. So we’re not an adverse lender. In fact, 50% of our customers last year had no adverse credit.
What we are, unashamedly, is a specialist lender. That means we take a more compassionate, responsive and realistic view of people’s circumstances and talk to them to find out their back story.
Often we discover that one-off adverse credit issues occur when creditworthy people have experienced a life event such as a bereavement, a divorce, or a redundancy, but then they get back on track.
Rob Barnard, intermediary relationship director at Pepper Money, is its lead for shared ownership. With 30 years’ expertise, he navigates mortgage market shifts and evolving customer needs with strategic insight.
How does the specialist lending approach differ from high street lending?
We use conversation, not credit scores, to turn these customers’ blips into DIPs – Decisions in Principle – and ensure that their unfortunate temporary circumstances don’t become permanent barriers to homeownership.
Another difference between us and the high street is that we give brokers direct access to our underwriters if more information about the applicant is required.
Do borrowers tend to stay with specialist lenders for the long term?
The average time our customers stay with us is four years, then the vast majority go back to high street lenders. In the course of my business, I met someone who found out that I was from Pepper Money. He told me: “Your firm gave me a mortgage and saved my life,” which was lovely to hear. Then he rang me not so long ago to say: “Rob, I’ve rehabilitated my finances so I’m leaving Pepper and going back to the high street. I’m really sorry.” I told him: “Don’t apologise, because that’s exactly what specialist lending is all about!” It’s giving people a chance when they need it. They have to live up to their part of the bargain, and make sure they keep their finances in a steady state. But then, when they can, they return to the high street.
So, no, being with a specialist lender isn’t forever. It’s for when you need it. It’s a stepping stone.
Has Pepper Money seen an increase in lending in the shared ownership space – and, if so, why?
Absolutely we have. Our shared ownership business has grown 21% over the past 12 months.
That’s not by chance. That’s a direct result of the changing needs of borrowers and the realities of today’s wider economic environment.
How would you characterise your shared ownership customer base?
Actually, data suggests that our shared ownership borrowers tend to be older and more established, with a higher-than-average income. They’re also more likely to buy as a couple.
What are some of the myths and misconceptions about specialist lenders?
A really frustrating one is that because we don’t use credit scores to make our decisions, we must be taking risks or shortcuts. But we’re absolutely not taking risks or shortcuts. In fact, our shared ownership lending criteria is significantly tighter than traditional housing market lending criteria. We’ll carry out credit checks and make sure stories are substantiated and that any adverse credit is circumstantial, not habitual.
By doing so, we give housing associations the comfort that we’re making common-sense decisions to help people who need our assistance at that time. So we are not lowering our standards. We’re applying the right standards. Another myth: some brokers think it’s difficult to deal with specialist lenders. But it’s not. We’re as easy to use as a high street lender – and doing so is more affordable than ever.
How important is it for the industry to actively communicate that ‘specialist’ doesn’t mean ‘substandard’?
I think the industry is beginning to understand that what we do is about more than lending. It’s about social mobility. Shared ownership and specialist lending fit beautifully together, like a hand fits a glove.
Lenders like us use a common-sense approach to help underserved borrowers achieve their goal of becoming homeowners, so preventing a generation of people having to stay in rented accommodation forever.
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