The specialist lending market has seen impressive growth over the past few years, with increasing numbers of self-employed, older borrowers and those with complex incomes (to name just a few of the criteria profiles) needing access to a wider range of lending solutions. In turn, this means more of us are not fitting the outdated “one size fits all” model offered by some lenders.
Borrowers are increasingly turning to lenders willing to take the time to build a relationship with them, understand their situations, and use common sense to make lending decisions. So, what’s in store for the specialist lending market in the future? Where are the opportunities, and what’s behind this growing demand?
Why borrowers are increasingly opting for specialist lenders
Mainstream lenders tend to focus on the more 'vanilla' segments of the mortgage market—those with straightforward needs and circumstances. For borrowers whose situations are not considered 'standard'—perhaps due to their employment status, credit history, or the type of property they want to purchase—specialist lenders are offering more personalised support and a common-sense approach to lending. In essence specialist lenders provide the flexibility and understanding many borrowers actually need.
An overview of the specialist mortgage market today
The demand for specialist lending has been increasing significantly over the past few years. We’ve seen a large uptick in demand for specialist lending from both personal finance and business customers, with Together’s average monthly lending in 2023 coming in at over £223 million and our overall loan book of £6.4 billion. This year, we are managing loans in excess of £7 billion, and had a record lending month of nearly £330 million in June 2024. These figures demonstrate the significant demand for specialist products as more borrowers seek lenders that are willing to understand their needs.
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As the economy emerges from the effects of Covid, we’re seeing strong demand from self-employed customers who are perhaps rethinking their work-life balance, as well as from those in the gig economy who are seeking greater flexibility. Additionally, with the recent cost of living challenges, there is a growing need for an understanding lender—one who appreciates the hurdles people have recently faced.
Future opportunities and the role of Labour support
We see the specialist segments within the UK mortgage market continuing to perform strongly this year, with even more growth potential on the horizon. As mainstream lenders continue to tighten their risk appetite and criteria, there is a growing demand for specialist support that can assess people’s financial circumstances on a case-by-case basis. These specialised lenders offer a solution, allowing more people to pursue their property plans, even with complex incomes or a history of missed bills or loan payments caused by cost-of-living challenges. It is important to recognise this trend in mortgage applicants, especially among younger age groups, who frequently encounter application difficulties due to having credit blips or County Court Judgments (CCJs). As the cost-of-living crisis continues to strain people’s finances, the proportion of applicants facing these types of challenges is only expected to rise.
This is also the case for businesses, especially Small to Medium Enterprises (SMEs). Our research shows that the UK’s SMEs are poised to invest an estimated £2.4tn in the next two years if barriers to growth, such as cautiousness and lack of understanding from mainstream lenders, are removed. An increasingly popular way to provide a cash injection amongst businesses is bridging finance, which is typically provided by specialist lenders. We see great opportunity in this market, expecting it to grow by 19% over the next five years as businesses look further afield for agile finance solutions outside of the mainstream lending pool.
Additionally, specific housing policy direction from the new government will play a role. For example, Angela Rayner’s announcement of plans to reform the Right to Buy scheme has the potential to affect thousands in the UK. While the full extent of these reforms is yet to be confirmed, if the Right to Buy scheme is scrapped for newly built council houses, many will look for alternative ways to get on the property ladder. We also anticipate more potential house buyers needing to access other schemes such as Shared Ownership, which is where specialist lenders will likely bridge this gap, especially considering that most people who utilise these schemes often fall into the ‘non-standard’ borrower category. For example, at Together, since August last year, we’ve seen a 23% increase in the volume of Shared Ownership mortgages we’ve provided finance for.
Furthermore, the Government has been clear in its ambition to solve the UK’s housing stock crisis, pledging to build 1.5m more homes in the next five years. As a part of this, there are plans to relax planning restrictions and review the greenbelt to address brownfield land and develop the less attractive ‘grey belt of Britain’ via the new draft National Planning Policy Framework. This will help remove red tape and unlock greater opportunities for both developers and homebuyers. During this drive to ‘get Britain building again’ all property developers, both big and small, will play a vital role. It is crucial that they have the necessary access to funds, no matter their size.
Final thoughts
The specialist lending market is set for continued growth, driven by evolving socio-demographics, a shift towards more flexible employment models, and a rising demand for personalised lending solutions.
As more borrowers find themselves outside the criteria set by mainstream lenders, specialist lenders have a crucial role in providing opportunities for all types of borrowers to achieve their property ambitions.
By offering a common-sense approach and a deeper understanding of each borrower’s unique situation, specialist lenders are well-positioned to capture a larger market share and shape the future of the UK’s lending landscape.
