The third is also linked to interest rates. Investors are in search of reasonable returns and specialist lending offers good return on investment. Ultimately the performance of mortgage asset relies on two things: the quality of the security and the ability of the borrower to repay.
House prices continue to rise in most areas of the UK, loan-to-values rarely exceed 85 per cent and borrowers deemed adverse have demonstrated their ability to repay the loan. There is money available to lend and there are borrowers who need to borrow.
Lenders have cottoned on and that is reflected by the number of players in the space. Kensington has long subscribed to the value of manually underwriting borrowers and taking a common sense approach to their circumstances. Many of the smaller building societies, too, never gave up finding more flexible approaches to underwriting mortgages and helping borrowers who had experienced minor financial difficulties find a mortgage.
Now, however, they are joined by the likes of Pepper Home Loans, which launched last year, Magellan Home Loans, Precise Mortgages and the most recent addition to the gang, The Mortgage Lender, headed by Trevor Pothecary who was the brains behind Mortgages Plc.
These lenders tend to view applications on a case-by-case basis and will take time to get under the skin of a deal. They want to assess whether the borrower has resolved a historical credit issue, for example an inheritance tax bill taking them temporarily over their overdraft limit, or the loss of a job when they have now returned to full-time employment. Where the borrower can demonstrate regular income and has made efforts to repair their credit, lenders are likely to view the application positively.
Although there is a price to pay, rates are still historically very low. The Mortgage Lender, for example, offers a two-year tracker rate at 1.98 per cent plus Libor, reverting to 4.88 per cent standard variable rate up to 75 per cent LTV. Its 80 per cent LTV deal is priced at 2.2 per cent plus Libor for two years. Pepper prices slightly higher with its two-year tracker rate at 2.93 per cent plus Libor up to 70 per cent LTV, reverting to a lower SVR of 3.63 per cent. Precise offers a two-year tracker up to 75 per cent LTV at 2.94 per cent plus Libor. And Magellan, perhaps the most entrenched adverse credit lender in the market at the moment, offers a 3.21 per cent plus Libor term tracker over 25 years up to 70 per cent.
Fixed rates are also available. Pepper’s two-year fixed rate up to 75 per cent LTV is currently priced at 3.28 per cent, Precise offers a three-year fixed rate at 3.29 per cent up to 75 per cent LTV and The Mortgage Lender’s two-year fixed rate up to 85 per cent LTV comes in at 3.4 per cent.
