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Small is beautiful

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Shrewd borrowers should take the time to look at the niche providers in the mortgage market.

While high street banks will offer the same product whether you live in Ipswich or Inverness, smaller lenders often have to target smaller areas or specific sections of the market.

One such lender is Teachers Building Society, founded in 1966 with the sole aim of helping teachers to own their own homes. It has since expanded its reach, now offering mortgages to anyone working in education, as well as people living in the society’s home county of Dorset. But it still offers a range of products specifically tailored to those working within the teaching industry.

Many other building societies are able to offer special deals on properties in their local area, for example Hinckley & Rugby Building Society launched a first-time buyer mortgage last summer available exclusively for properties in the Midlands region.

Chris White, chief executive of Hinckley & Rugby, says that similar local area specials exist at numerous small building societies up and down the country, and are often used to test the water with a new product.

“Our Midlands first-time buyer mortgage is a good example of how a restricted product can ideally suit particular buyers. We initially restricted the mortgages to the Midlands primarily because it had been a while since Hinckley & Rugby had offered a 95% loan-to-value (LTV) mortgage and we wanted to test the market locally first, in our own region.

“But we have taken confidence from how it has worked and are now looking at extending the boundaries for that deal, to bring it to more people in more locations.

“There are many, many mortgage products out there and it will serve borrowers well if they take time to find out which lenders are doing which deals that could be suitable for them.

“It is not always about a headline rate – borrowers should dig a little deeper than that. And local knowledge works both ways. We are proud of our very personal customer service, for instance, and we are well known for that in our heartlands, and by customers further afield with first-hand experience of how we work.”


Thinking outside the box

Smaller lenders can also trump major brands when it comes to accepting or rejecting a mortgage application. Big banks tend to have a policy which sees mortgage decisions made by a computer system based on a series of criteria a mortgage customer must meet. Smaller lenders will usually look at each case individually; this process is known as individual underwriting.

David Hollingworth of mortgage brokerage London & Country says that smaller lenders can offer an option to borrowers with credit history issues and will be more accommodating with customers than major brands.

“Although the big banks and building societies will always be responsible for the majority of the mortgage lending in the UK there are a number of other, smaller lenders that help bring competition and diversity to the market.

“That is especially true as lender criteria have tightened in recent years and these lenders can offer an alternative to the sometimes ‘one size fits all approach’ of big players,” he says.

“Long established but small building societies have found that they can offer real value in today’s market. Where a borrower’s credit score is key with big lenders, smaller societies may approach the underwriting on a more personal basis.

“Rather than rely on a scoring model they can therefore sometimes take a more commonsense approach. That’s not to say that they will lend huge amounts to all and sundry but they can offer a useful option coupled with extremely competitive rates.”

Off the high street

Mortgage hunters should use the internet to research what deals are available in their local area and consider talking to a mortgage broker, who can give professional advice on which products best suit your circumstances. Talking to friends and family can also give an idea of the type of products that are available.

Using a local mortgage broker will usually be the easiest way to get a view of your local market. Brokers, often called mortgages advisers or intermediaries, also have access to certain lenders that are not available on the high street.


Family support

Another lender that operates solely through brokers is Aldermore. The bank launched in 2009 and is one of the few firms in the market able to offer a 100 per cent mortgage to first-time buyers. Its Family Guarantee Mortgage allows borrowers who have little or no deposit to use a parent or grandparent to provide a guarantee on the mortgage, secured against their existing home. This lets borrowers who would otherwise struggle to get onto the housing ladder a chance to purchase their first home.

It’s this creativity and product innovation that is lacking in the wider market. The fact that both lenders have no legacy costs and expensive high street chains are some of the reasons why they can outmanoeuvre traditional banks in this way. While they will not be suitable for everyone, for first-time buyers struggling to raise a deposit or simply left disillusioned with high street banks, options are still available if you do your research and are able to uncover a hidden mortgage gem.

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