More mortgage choice means it’s more important than ever to choose the right lender
Alpa Bhakta, CEO, Butterfield Mortgages Limited
Recent years have seen a substantial increase in the number of mortgage products available on the market. Between 2016 and 2018, an additional 4,212 products were introduced into the residential mortgage market according to data provided by Mortgage Brain.
There are two reasons for this trend. Firstly, existing lenders are increasingly offering a wider range of services to cater for a broader range of clients and secondly, the rise of alternative financial providers such as peer-to-peer lenders has led to an expansion in the options available to consumers.
Broadly speaking, while more options for consumers are a positive development, greater choice can make it more difficult for borrowers to identify a mortgage best suited to their needs. Moreover, market uncertainty and increased competition have created a challenging climate for mortgage providers. This means that borrowers must tread carefully and select an experienced lender with strong expertise and a proven track record.
Navigating the market
Before attempting to sift through the numerous options available in today’s market, borrowers have to be aware of how different mortgage products meet their individual needs. This can be particularly challenging for certain types of borrowers such as high net-worth individuals (HNWIs) and property investors. Indeed, an independent study commissioned by Butterfield Mortgages Limited (BML) earlier this year found that one in nine HNWIs had been denied a mortgage in the past decade.
In essence, the proliferation of mortgage products matters little to HNWIs because many high street banks struggle to meet the specific needs presented by individuals with unusual income structures. As a result, HNWIs typically require a more bespoke, prime mortgage service few providers are capable of providing.
This is borne out in BML’s study: 79% of HNWIs think too many lenders are governed by restrictive “tick box” methods when assessing mortgage applications and 67% of UK HNWIs have lost confidence in high street banks, feeling they do not cater to the needs of property investors and buy-to-let landlords.
Making the right choice
While greater choice and flexibility represents an opportunity for shrewd investors, where mortgages are concerned, caution is always advisable. Consequently, it’s more important than ever that you choose a mortgage provider that not only understands your needs but also has the capacity to guide you through an increasingly complex market.
This means a greater role for brokers in guiding their clients towards the best mortgage. According to BML’s study, 73% of HNWs currently rely on brokers. In other words, the more specific an individual’s requirements, the more useful intermediaries are.
Of course, not every provider’s first forays into the mortgage market have been entirely successful. While more options might be good for the consumer, the FT Adviser reported in January that Brexit uncertainty and increased competition has forced major providers including Secure Trust Bank, Amicus Finance and Fleet Mortgages to withdraw from the lending market. This dual challenge has created issues for some of the newer lenders on the scene, but the outlook remains positive for more established lenders who are well-positioned to adjust to market shocks or regulatory changes.
A lender’s longevity is contingent on their ability to weather periods of uncertainty and maintain a high level of service in the face of pressure brought about by short-term turbulence. Naturally, it’s easier for established and experienced mortgage providers to demonstrate their resilience because they have a proven track record of enduring through periods of uncertainty, while at the same time not letting this undermine their service and product.
In the present climate, borrowers and brokers must stay attuned to the potential impact of political and economic uncertainty on new entrants to the mortgage market. Ultimately, investors, particularly HNWIs, are right to seek out financial products that grant them greater flexibility, but individuals would do well to consider the relative strength, security and solvency of any provider they might wish to partner with.
Alpa Bhakta is the CEO of Butterfield Mortgages Limited. Part of the Butterfield Group and a subsidiary of The Bank of N.T. Butterfield & Son Limited. Butterfield Mortgages Limited is a London-based prime property mortgage provider with a particular focus on the needs of UK and international HNWIs.