With so many alternative lenders in the market, is it now time to look at the value they bring to the market.
When it comes to getting a mortgage, the “big six” have traditionally dominated the market by offering the most competitive deals. They are able to leverage their deposit book and borrow from the corporate money markets to really overpower the market.
However, the last 18 months have seen a real shift in the monopoly enjoyed by the big six. A number of lesser-known alternatives have made a real push for market share with competitive deals and the promise of better customer service and turnaround times.
The rates offered by the smaller building societies are now comparable to the high street in terms of their fixed rate offerings and in most cases lower on their base rate tracker/discounted rates.
In the current climate, a lender, offering competitive rates and good service almost feels too good to be true, so what are the pros and cons to looking away from the high street?
What are the pros and cons of using a small lender?
Apart from offering a suite of rates that now more than hold their own against the high street lenders, there are many positives to using the smaller lenders;
Flexible Criteria – the larger lenders invest heavily in automation and in most cases, the decision with be system based….the old “computer says no” saying. This can mean that your circumstances aren’t fully taken into account during the process and can affect everyone, but in particular, the self-employed.
Most smaller institutions will use a manual underwriting process. This means that, at points during the application process, your case will be overseen by an individual(s) who generally have the discretion to accept a case that may not fit criteria.
Reputation – the larger lenders have taken a battering post 2008 over their handling of the financial crisis, justifiably in some cases and their reputations have suffered since. Building Societies are owned by their members, so they don’t have to meet the demands of shareholders like banks.
Due to there being less pressure to deliver a return to the shareholders, they can operate profitably with fewer customers and ensure that the overall experience is far better, broadly speaking.
Innovative products and services – The beauty of being a smaller, more agile lender, is that the cost saving from IT infrastructure can be channelled into being more creative with their product offering,
Most offer manual underwriting, flexible products that will allow additional discounts, cash back, provide higher loan to income multiples and also larger percentage-based overpayment facilities.
What to watch out for with a smaller lender
There are also potential drawbacks when using some of the smaller/regional lenders. This can include;
Lower Maximum Loans – Most of the high street will offer a high maximum loan. This can often run into the high millions. This isn’t the same with the smaller lenders so you may find yourself in a situation where you cannot borrow what you need.
Slower Application Process – Manual underwriting can be time-consuming with individuals taking additional time to understand the client. Traditionally, smaller businesses employ less staff, so this can slow the process down considerably when compared to the high street that is fully automated.
This can lead to the lender removing a popular product from sale as they can very quickly become inundated with enquiries, and this could have a catastrophic effect on service.
In such a fast-paced market, manual underwriting could double the time it takes for you to receive a decision, and if that is a decline, it would mean starting again.
Geography – A number of the smaller, provincial building societies will only operate within a county, or country, so this is something the be wary of when doing your research. You may find an alternative property, post application and find that this is outside of the lender’s geographical appetite.
If you are thinking of buying or remortgaging your home, I would recommend speaking to an industry professional at Suttons.
Please call 0161 969 1703 and ask to speak to Ben Horsfield or Rob Ferguson.
Article by Ben Horsfield, Head of Mortgage Services, Suttons Independent Financial Advisers