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Highest demand for specialist mortgages comes from self-employed

A diverse set of customer needs from the self-employed are driving demand for specialist residential mortgages, according to Paragon’s Financial Adviser Confidence Tracking (FACT) Index report.

The company asked 198 mortgage intermediaries for the proportion of their business represented by different customer types in Q4 2017. Some 21% said that self-employed customers dominated, representing one in five of all cases.

This reflects the sharp increase in the number of self-employed people in the UK, up 24% over the last 10 years from 3.9 million to almost 4.8 million in the final quarter of 2017.

After self-employed business, interest-only was the next most popular type of specialist mortgage business (15%), followed by complex income (14%), high loan-to-value (14%) and lending into retirement (11%). 

In contrast, low income business made up just 7% of specialist mortgage applications in Q4 2017, with adverse credit business at 6% – the least dominant factor since the FACT Index report began tracking specialist residential lending characteristics in March 2015.

Meanwhile, more than a quarter of intermediaries said that they expect to increase second charge mortgage business in the next 12 months, stating that second charge lending represented a practical alternative to remortgaging and more advances for certain customers.

“It seems clear from this latest research that complexity around employment and income are the most significant reasons that intermediaries review the options available from specialist residential lenders,” John Herron, managing director of mortgages at Paragon, said.

“Customers with these characteristics are more likely to benefit from the detailed individual approach to underwriting that lenders in this segment of the mortgage market can deliver.”

He added: “With employment patterns continuing to become increasingly diverse and complex, we may well see this area of the market expanding going forward.”

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