From our perspective there are a number of interesting developments and themes emerging, many of which have their foundations in 2017.
Of course, robo-advice will continue to draw attention for good reason and there are a number of further developments anticipated in this area, not least from ourselves.
We’ve talked at length about firms not ignoring what is happening in this part of the market because undoubtedly it will appeal to a certain client demographic.
Having that as part of your proposition is never going to be a negative, and we should also be aware of the way lenders are using these types of systems especially in retaining borrowers.
But how are lenders adapting and developing their ranges and offerings in light of some serious changes across the industry?
Big change
The big change has of course been the significant drop-off in buy-to-let (BTL) business, particularly purchasing since the introduction of the stamp duty increases, underwriting rule changes, and the ongoing, progressive cuts to mortgage interest relief.
Margins, particularly at what we might call the ‘mainstream’ end of the buy-to-let market will have suffered.
This is especially so considering more purchasing through limited company vehicles – hence The Mortgage Works’ (TMW) recent decision to move back into this sector.
The knock-on effect for such lenders who would have been reliant on the greater margin buy-to-let brought in, is that they are having to look at different areas of the market to recoup this.
We’ve already seen certain lenders broadening their options on the residential side. Some are moving into interest-only for instance, offering greater options for retirement lending, developing an equity release product range, and being far more visible in the high loan-to-value and first-time-buyer markets.
Product transfer pressure
The quest to find growth in other non-BTL niches will become even more pressing if lenders start to feel pressure on their product transfer business.
Estimates put this market at £100bn and if advisers start to make inroads into this, then the lending fraternity will have to make significant changes.
Part of this evolution should, in our opinion, be around smarter product development – for instance, the technology now exists for even the most rigid of lenders to introduce a greater degree of flexibility.
Treating borrowers as individuals allows smaller, more specialist and niche lenders to exist and thrive.
However, mainstream operators could mirror this type of approach, utilising technology, for example, to provide both flexible rates and fees based on a borrower’s individual needs and circumstances.
We understand the need for settled, easy to understand product ranges but there will be borrowers who might not fit this template exactly but, with some tech-based tweaking of the product, could be accommodated.
Complicated borrowers
Lenders are likely to need to square this particular circle because borrowers’ economic and personal circumstances can now be very complicated.
Add in the affordability measures they have to meet and the greater range of options available to them and the move towards a more specialist marketplace begins to gather pace.
One suspects though that the large mainstream operators will not be willing to let large parts of this market go without a fight, and by this token we should be hopeful that 2018 brings with it plenty of new products.
However, let’s not underestimate the challenge that exists for advisers – we are going to have to fight for the business as certain lenders’ commitment to upping their direct business will remain strong.
