The specialist mortgage market is on the cusp of a major shift, and as we look ahead to 2025, the question isn’t whether demand for these products will grow, it’s whether specialist mortgages will take centre stage in the industry.
Economic pressures, rising levels of unsecured debt, and a growing number of people with adverse credit are all converging to create an environment where specialist lending is no longer the exception but, increasingly, the rule.
The challenges facing many UK households today have been well-documented. According to a report by the Financial Conduct Authority (FCA) earlier this year, 7.4 million adults are still struggling to pay their bills, and five-and-a-half million missed at least one payment in the six months leading up to January 2024. Furthermore, the regulator said that one in nine adults reported having no disposable income.
Rising levels of unsecured debt
Layered on to this is the rise in unsecured borrowing. The latest Pepper Money Specialist Lending Study found that 41% of people increased their unsecured debt in the last year, with nearly a third of the population owing over £5,000 and 10% managing debts of more than £15,000.
The Bank of England also noted increased demand for credit card lending in the second quarter of 2024. It’s no surprise, then, that debt consolidation products are gaining traction as clients look for ways to bring their finances under control.
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It may not be right for everyone, but in some circumstances, by consolidating unsecured debt into their mortgage, borrowers can reduce their monthly outgoings, often making a significant difference to their financial wellbeing and putting them in a stronger position for future mortgage applications.
Credit difficulties plague millions
The key driver behind growing demand for specialist mortgages, though, is adverse credit. Pepper Money’s study shows that 15.4 million people – nearly 30% of the UK adult population – have experienced adverse credit at some point in their lives. Of those, 8.4 million have faced adverse credit within the last three years, marking a 21% increase on 2023.
This growing prevalence of financial setbacks is driving more people to explore specialist lending options, as customer circumstances are increasingly falling outside the criteria of high street lenders.
A significant number of people with adverse credit are also planning to buy a property in the next year – 1.76 million people, according to the Specialist Lending Study. At Brightstar, we’ve already seen a shift in behaviour. Clients who might have previously hesitated to explore their options are now actively seeking advice.
We’ve definitely seen an increase in awareness of the options outside of the high street and, while rates are not falling as quickly as many had anticipated, the base rate cuts this year have encouraged many to get on with their plans.
The specialist lending market is also very competitive, and I would expect lenders to continue to introduce criteria enhancements, innovations and competitively priced products as we move into the new year.
Is 2025 the year of specialist mortgages?
As we approach 2025, it’s clear that specialist lending is no longer a niche segment – it’s becoming a cornerstone of the mortgage market. For brokers, this presents an opportunity to lead the charge, positioning themselves as trusted advisers who can navigate the complexities of specialist products and deliver real value to their clients. Even if you are not used to working in the specialist market, you can still offer off-high-street options to your clients by partnering with an expert in this market, like Brightstar.
Will 2025 be the year that specialist mortgages become the norm? All signs point to yes – and we’re excited to help brokers and their clients make the most of what’s to come.
