Many mortgage brokers instinctively associate specialist lending with adverse credit. It’s an understandable connection – after all, specialist lenders have long been a go-to solution for customers who have experienced financial blips and need a lender able to take a more individual approach. But if adverse credit is the only reason you might consider a specialist lender, you could be missing out on a huge opportunity to better serve your customers.
The reality is that specialist lenders cater to a far broader range of customers than many might think. Take, for example, our own figures at Pepper Money. So far this year, 35% of full mortgage applications have come from customers who have never had a default or CCJ. This is an increase from 32% last year. This is a significant proportion of borrowers who wouldn’t consider themselves to have adverse credit. And with our recent relaunch of our Buy to Let offering, which now includes HMO (houses in multiple occupation), we anticipate this will continue to grow.
The income levels of applicants to a specialist lender might also be surprising to many brokers. Last year, 70% of applicants to Pepper Money had an income above the national average of £36k, according to ONS. More than a fifth of applications (21%) earned a household income of more than £72k, and 4% had a household income exceeding £120k. Looking at data so far from this year, we’ve continued to see a significant increase in the number of completions where the household income was more than £100k.
These customers don’t necessarily struggle to secure finance due to poor credit history. In fact, many of them would seem, on paper, to be ideal borrowers. But what these figures highlight is that high income doesn’t automatically mean a straightforward mortgage application or guarantee a smooth process with a high street lender, and there are many other factors that can mean a specialist lender is the right choice.
Think about self-employed customers, for example. Many traditional lenders require two or three years’ worth of accounts, but that’s not always the most accurate reflection of someone’s financial position. Some customers may have had a bumper year, while others may have retained profits within the business rather than drawing a high salary and dividends. A specialist lender, like Pepper Money, can assess affordability using the latest year’s accounts or consider the retained profit within the business to provide a fairer representation of financial stability.
Then there’s the issue of complex income. Many high-earning customers will earn money from multiple sources, whether that’s investment income, bonuses, commission, or overtime. Some mainstream lenders struggle to assess this in full, meaning customers aren’t always able to borrow what they can reasonably afford. A specialist lender takes a more holistic approach, ensuring that all income streams are properly considered.
Another common stumbling block is debt-to-income ratio (DTIR). Many high earners also have significant unsecured debts, and some lenders will decline an application outright based on those figures alone. At Pepper Money, we don’t apply a DTIR. Instead, we assess every application on its own merits, looking at affordability in the round rather than relying on arbitrary thresholds.
The key takeaway here is that specialist lenders aren’t just for adverse credit. They offer a range of solutions for customers whose circumstances don’t fit neatly into the tick-box criteria of high street lenders. Whether it’s self-employed customers, those with complex income structures, or high earners with additional financial commitments, a specialist approach can make all the difference.
So, the next time you’re reviewing options for a customer, take a step back and think again. Specialist lending isn’t just about overcoming credit challenges – it’s about finding the right mortgage based on individual circumstances for the right customer outcome. And, increasingly often, this means looking beyond the high street.
Paul Adams, Sales Director, Pepper Money
