The term non-status lender is used by the mortgage and property loan industry where the applicant does not necessarily need to show their income or credit score in order to be accepted for a loan. Whilst non-status lenders do remain regulated, they have different terms and requirements than those status lenders that are governed by the FCA – who will always need to ask for proof of income and credit history.
Since income and credit scoring is not an underwriting factor, the lenders will base their decision on the value of the property and the customer’s plans for the loan. With mortgages and property loans, the finance is pretty much always secured on the property so if it has a good value in a strong market, the lender can feel confident to lend knowing that they will likely make a return.
Why Would A Lender Want To Be Non-Status?
For the lender’s point of view, not having to carry out major affordability or credit checks can save a lot of time and money. No need for huge underwriting teams or the cost of tools and credit bureaus in order to carry out checks. If the lender knows that they can assess the value of a property, an individual’s plans and potential growth effectively, they can make a healthy profitable on a loan.
Since the applicant is not showing their income or credit score, they will therefore receive a lower loan to value (LTV) with a maximum of 75% and the interest rates will be higher. So from the lenders point of view, they can potentially lend lower amounts and charge higher rates than regulated competitors. (Source: Bridging Loan Hub)
Why Should I Apply For a Non Status Loan?
Applying with non status lenders is ideal for those individuals that struggle to show their income, maybe because they are self-employed or contractors. In these cases, showing pay-slips and estimating your annual income can be tricky. But that doesn’t mean that you aren’t a good person to lend to and won’t pay your loan on time. To save hassle on trying to prove your income, you can just apply with a non regulated lender and avoid the conversations altogether.
Plus, with less checks involved, they can probably complete the application sooner and transfer the funds a lot quicker.
- Since there are no income or credit checks, the LTV is likely to be lower than standard regulated mortgages and the interest rates are likely to be higher than other regulated lenders.
- A non status lender will not lend to someone if it is their primary residence i.e you currently live there. So if you want to use a non status lender for your home, you will not be able to do this.
- Whilst the current and potential value of your land is important, other underwriting factors include having a strong business plan and good track record.