Specialist lenders aren't as well-known as big banks and building societies, but they contribute to a large portion of the non-mainstream lending in the UK. High street banks have stricter underwriting criteria and are less flexible to non-standard purchases, so if you are you are buying a HMO or at auction, or have bad credit or are self-employed, you are less likely to find a product with mainstream lenders. That’s where specialist or alternate lenders come in.
Simply put, a specialist mortgage is a non-mainstream, non-traditional, non-conventional product. For example, if you are looking for a loan on HMOs, MUFBs, semi-commercial units, flats with deck access, ex-local authority flats, studio flats, etc., these are unlikely to be accepted by mainstream lenders. Sometimes, it is a fully tailored, customized loan for people or businesses who have a very specific need.
Specialist loan products are designed to meet unique needs or cover unusual property types that mainstream lenders do not accept. Specialist lenders carefully craft products for such gaps in the market and review each applicant’s financial situation instead of using computerised underwriting although strictly following their own funding criteria which are usually more lenient and therefore by definition, more expensive. Since these loans are for people who don't typically “fit the bill”, they are usually offered through mortgage brokers. Because they are more personalized and considered higher risk, specialist mortgages often have slightly higher interest rates than regular ones.
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Despite common misconceptions, specialist mortgages function similarly to standard residential mortgages, with the main difference being their focus on borrowers with unique circumstances. The process involves paying a mortgage deposit and undergoing credit and affordability checks to assess eligibility, followed by monthly repayments. While high street lenders often reject applicants with poor credit or financial issues, specialist lenders are more flexible, especially if a larger deposit is available - typically, the loan-to-value ratio can vary between 50% and 80%. A key difference however is the following of Interest Coverage Ratio which is not a factor for standard residential mortgages.
Is it possible to access specialist lending despite having a history of adverse credit?
You’ll likely need a specialist lender if your situation is outside the usual criteria. Major banks and high street lenders have stricter guidelines, so if you have bad credit, are self-employed, or face a complex situation, you may struggle to get approved. They often rely on automated systems that aren’t equipped to handle non-standard applications.
Specialist lenders are usually a good option for those with adverse credit, self-employed individuals, people with varied income sources, unique purchase types, or single and low-income applicants.
Don’t give up if a bank rejects your mortgage application. A specialist lender, with human underwriters who assess each case individually, may be able to help where others won’t.
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