What Is A Specialist Mortgage? A UK Expert Guide

Quick Answer: A specialist mortgage is made for borrowers who do not meet standard lending criteria mainstream lenders use. It is best suited for self-employed borrowers, borrowers with bad credit, complex income, unusual properties, expats, and other complex circumstances.

Mainstream mortgage lenders across the UK have had standard lending criteria and eligibility requirements for years. However, not all homebuyers can meet them.

This doesn’t mean they cannot purchase the properties or remortgage they have always wanted to.

Specialist mortgages are the best way out for such borrowers.

What is a specialist mortgage?

A specialist mortgage is a mortgage for a circumstance falling outside mainstream lenders’ standard criteria.

It is best suited for borrowers with:

• Bad credit
• Complex income
• Sole traders and company directors
• A property with non-standard construction

There is no one standard definition of a specialist mortgage. It differs for different lenders based on what they specialise in. Generally, specialist mortgage lenders in the UK take up cases that are otherwise rejected by mainstream lenders.

It is a common misconception that specialist mortgages are only for borrowers with bad credit. Bad credit is one of many circumstances specialist mortgages tackle. A company director with an excellent credit score and income may also need these mortgages if they don’t fit standard lending criteria of high street banks.

How is a specialist mortgage different from standard ones?

A standard mortgage involves mainstream lenders relying on standardised affordability and credit assessment. A specialist one focuses more on individual circumstances and their income.

The main difference lies in flexibility.

The Financial Conduct Authority (FCA) has clearly noted that lending criteria can significantly differ between different lenders. It also notes that specialist lenders are more likely to consider applications with 12 months trading histories or 1 years account and unconventional circumstances.

However, going to a specialist mortgage lender in the UK doesn’t mean automatic mortgage approval. You still need to pass affordability checks and meet lender criteria to complete your mortgage.

Who may need a specialist mortgage?

Specialist mortgages are suitable for a wide range of borrowers with varying circumstances.

Self employed

Some of the most common beneficiaries of specialist mortgages are Sole trader, contractors and company directors. While many mainstream lenders have also started accepting self-employed mortgage applications, specialist mortgages continue to attract contractors (especially if their income is complicated).

Company directors or contractors may also need specialist mortgages, even if they have excellent credit scores or income. Common applicants include directors receiving a combination of salary, dividends, and annual company profits. It is always a challenging to prove company directors income to main stream lenders.

Borrowers with bad credit

Specialist mortgage lenders also help borrowers struggling with their credit.

Depending on the lenders, they take up applications involving:

• Payment defaults
• County Court Judgements (CCJs)
• Missed payments
• Mortgage arrears
• Individual Voluntary Arrangements
• Bankruptcy
• Debt management plans

Along with poor credit, lenders consider factors like age, size, and status of the credit problem. Your current financial position also plays an important role.

Specialist mortgages for unusual properties

Specialist mortgages aren’t limited to borrower problems. Sometimes, the problem may lie with the property.

Mainstream lenders generally prefer conventional builds that are straightforward to value and sell.

Specialist mortgage lenders consider properties like:

• Flats above commercial spaces like fast foods or shop.
• Listed buildings
• Non-standard constructions
• Timber-frame properties
• Thatched properties
• Ex-local-authority homes
• Properties with unconventional layouts
• Mixed-use properties
• Houses in multiple occupation (HMOs)

Lenders also focus on the property’s location, construction, condition, lease, and resale value while processing your specialist mortgage application.

Also, if one lender doesn’t approve your application, it doesn’t automatically make an unconventional property unmortgageable. A different lender with unique criteria may approve your application.

This is why it is important to work with whole-of-market mortgage brokers with access to specialist lenders. They will bring you deals from multiple specialist lenders based on your specific requirements.

Specialist buy-to-let mortgages

Landlords can also opt for specialist mortgages across the UK.

Buy-to-let situations often become complex if you own multiple properties, operate through a limited company, or want to finance a property like an HMO.

Specialist buy-to-let lenders consider applications for:

• Limited company buy to let
• Portfolio landlords
• HMOs and other multi-unit properties
• Complex rental agreements
• Properties in need of refurbishment
• Applicants with unconventional income

Do specialist mortgages have higher interest rates?

It is common for specialist lenders to charge higher interest rates for the risk they take by making unsafe bets.

However, not all specialist mortgages cost you more. It depends on your circumstances and the lenders involved. Lenders will always look at your LTV, credit profile, property, loan size, product structure, and financial circumstances before offering deals.

How much deposit do specialist mortgages require?

It is common to assume that specialist mortgages always require bigger deposits.

However, this is not true.

While some complex cases may require you to buy more equity with bigger deposits, you will also find specialist lenders offering high LTV mortgages.

Your deposit requirements typically depend on:

• Property type
• Income structure
• Credit history
• LTV
• Mortgage purpose
• Property value
• Loan size
• Lender’s risk appetite

However, a larger deposit will always strengthen your application, just like in a standard mortgage.

Why are specialist mortgage brokers important?

Mortgage brokers play an important role in securing specialist deals. Most of these deals depend on your individual circumstances.

Specialist mortgage brokers in the UK understand their clients’ specific requirements, scan the markets, and bring them deals that best suit their circumstances.

Your mortgage advisor, helping you choose a suitable lender and deal based on your preferences. They will help you make your application and ensure that you fulfil all lender criteria.

The final word: specialist mortgages save you from losing hope

Specialist mortgages help borrowers who have little to no chances of approval from mainstream lenders. They prevent you from losing hope by opening a door to multiple opportunities.

If you are struggling with your credit, have unusual income, or want to buy an unconventional property, work with independent mortgage broker with access to specialist lenders. With significant market knowledge, they will connect you with specialist lenders that work best for your case.

What ever your mortgage needs to MariannaFS for your specialist mortgages by completing the contact form.