The 80/20 rule, otherwise known as the Pareto Principle, surmises that around 80 percent of results come from 20 percent of the input. Applying this to specialist lending, I’d venture as far as to say that 20% of brokers send 80% of their eligible cases to a specialist lender, while the other 80% of brokers tend to only send 20%.
By eligible deals, I am referring to the deals that are often overlooked because of the widely accepted notion that specialist lenders only cater for the section of the mortgage market with impaired credit.
In reality, it is much more accurate to see the specialist lending market as providers of loans that the high street banks simply have no appetite for.
Under current market conditions, a growing housing crisis and a shortage of options for first-time buyers, it’s important that we shed the idea of specialist lenders as impaired credit lenders first and foremost.
Instead, what many first-time buyers are looking for in a property purchase is the ability to afford the cost of the mortgage within their current means. It has been well-documented how house prices have outpaced wage growth over the past couple of decades.
Against this backdrop, loans that only provide 4.5x one’s annual income has made the dream of homeownership more and more unattainable for many. After recent FCA rule changes, some high street lenders have raised their maximum LTIs, however these generally come with very strict criteria for these banks that prefer lower risk.
Specialist lenders on the other hand, typically apply upper limits to LTIs of either 5.0x income and less commonly up to 6.5x income.
The Perception Problem
The label "specialist lender" has become shorthand for "impaired credit lender" in too many broker conversations. It's an outdated categorisation that does a disservice to clients who could benefit from specialist solutions but never get the opportunity.
The reality is more intricate. Specialist lending exists because parts of the mortgage market have complexity that high street lenders cannot adequately serve with their standardised processes and automated decision funnels. And often, these complexities aren't about credit history at all. Instead, they're about income levels, loan values, property values, property types, borrower identities, borrowing purposes, or even investment strategies.
Affordability: The Real Dividing Line
The most significant gap between high street and specialist lending isn't credit appetite, it's affordability assessment.
Let’s consider borrowing needs in the current housing market. Median house prices in many regions now sit at 8-10x median earnings. For many would-be homeowners, the gap between what they can borrow and what they require cannot be bridged.
Specialist lenders generally offer much higher LTI ratios at higher LTVs than most high street banks and offer longer loan terms to assist borrowers with higher affordability needs than the high street has on offer.
Moreover, specialist lenders approach affordability with more flexibility around income verification, with a greater acceptance of variable income, and willingness to consider the broadest spectrums of evidenced earnings.
Credit: Context Over Scores
High street lending relies heavily on credit scoring, which while efficient and consistent, are completely rigid and can’t be reasoned with.
Specialist lenders, on the other hand, look at credit in context. When did issues occur? What were the circumstances? What has the borrower's financial behaviour been since? For many lenders in this space, defaults below certain thresholds are effectively discounted, particularly if they're historic.
This approach captures a significant segment that isn't genuinely high risk but may appear as such to stringent algorithmic models. Someone with a satisfied CCJ from a disputed utility bill three years ago, with otherwise pristine credit, isn't a high-risk borrower. They just can't pass an automated test.
Additionally, as the cost of living continues to rise, some have turned to credit for to meet monthly needs yet pay these debts with diligence and efficiency. High street lenders who take a rigid approach to debt-to-income ratios, are likely to reject applications from such applicants. However, specialist lenders may be willing to satisfy debts already held by increasing the loan amount to cover these debts, which comes down to individual lender risk appetites.
The Buy-to-Let Complexity Layer
The buy-to-let market has diversified significantly. What was once straightforward has evolved into a sophisticated landscape of different property types, letting strategies, and portfolio structures. High street lenders haven't kept pace.
Consider the landlord converting a standard let into an HMO. The rental yield improves substantially, yet most high street lenders are yet to fully embrace the more complex property types, not because they're inherently risky, but because they fall outside standardised processes.
The same applies to multi-unit freehold blocks, properties above commercial premises, short-term lets, and corporate lets. These property types present legitimate investment opportunities requiring specialist underwriting expertise.
The impending Renters’ Rights Act is accelerating this shift. As the regulatory environment around traditional ASTs (which will be abolished) becomes more restrictive, landlords are increasingly looking at alternative letting models that sit largely outside both the Act's scope and high street lending appetite.
The Professional Landlord Problem
As landlords scale their operations, they often find it harder, not easier, to access lending. High street lenders generally have caps on portfolio size (even if the rest of the portfolio is secured with another lender). A landlord with ten properties might find their eleventh application declined simply because they've hit an arbitrary limit.
These landlords don't need basic BTL products. They need lenders who can move quickly on opportunities, understand portfolio strategy, and handle large loans and complex ownership structures. The cost of lending, while important, is often secondary to the ability to actually complete the deal.
Rethinking the Category
The fundamental misunderstanding about specialist lending is that it represents a quality tier below high street lending. In reality, it represents a different operational model suited to different circumstances.
High street lenders excel at high-volume, standardised lending. Specialist lenders excel at lower-volume, more complex lending where circumstances require expertise and flexibility and a more manual approach to underwriting. Neither is inherently better. They serve different needs.
The problem arises when we route clients based on incorrect assumptions. That first-time buyer who needs to borrow 6.0x their income? That landlord planning corporate lets? That homeowner who needs to remortgage and release capital quickly? They need specialist solutions, regardless of their credit history.
The Cost of Misperception
The 80/20 rule exists because perception hasn't caught up with reality. Brokers categorise specialist lending as impaired credit lending, so they only consider it for clients with obvious credit issues.
This means clients with complex but sound circumstances face unnecessary declines. Landlords with sophisticated strategies can't execute their plans. First-time buyers who could afford homeownership remain in the rental market. Professional landlords can't scale because they've hit arbitrary limits. And so on.
Brokers who don’t learn to embrace the full spectrum of specialist lending are costing their clients opportunities.
The Path Forward
Reframing how we think about specialist lending means asking different questions: Does this client's income structure fit standard assessment models? Does this property type fall within high street appetite? Does this borrowing purpose require speed or flexibility? Does this landlord's strategy exceed the high street’s capacity?
These questions identify genuinely specialist cases that have nothing to do with credit quality.
The mortgage market is not binary. It's not high street for good credit and specialist for bad credit. It's high street for standard circumstances and specialist for everything else. And "everything else" is a far larger category than just 20% of the market.
The 80/20 rule doesn't reflect the true distribution of suitable cases. It reflects a perception gap. Closing that gap benefits everyone involved in the mortgage market.
West One’s offerings exemplify this by providing products designed for clients with higher affordability needs. This includes residential products at 6.5x LTI that require just a 2.5% deposit and uncapped LTIs for earners over £50k. For landlords, we offer a £15m portfolio cap with no exposure limit, while considering most property types, letting types, and company structures.
These measures, similar to ones taken by other specialist lenders, unlock the other 80% of opportunities brokers tend to miss.
To reiterate, specialist lending is not primarily about impaired credit.
