Lender, Mortgages plc, is to set up ‘The Mutual Co-Operative’ that will see it passing high margin business in the credit-impaired sector on to regional building societies.
The specialist lender is hoping the move will allow it to compete with those large mainstream lenders looking to move into the light-adverse sector, and also widen the lending criteria of regional building societies.
Assets and sale of loans is commonplace among lenders, but Mortgages plc claims this is not just an elaborate through lending exercise.
It is proposing to allow the building societies to be involved in the initial design of the products and criteria to create one product range. They will also be able to ‘pre-agree’ the terms and volumes of business. The lender will then originate a substantial volume of business over an agreed period of time and pass these assets on in the appropriate-sized tranches to the building societies. The lenders will be able to control how and when they receive the assets to fit around their core business.
Peter Beaumont, sales and marketing director at Mortgages plc, said: ‘The Mutual Co-Operative is a classic example of true partnership. Mortgages plc has the distribution base and expertise to originate margin-positive business, and the building societies have an opportunity to collectively design and control the exact profile and volume of business they want on their books.
‘Both parties are working together from the inception of the product design process. If everyone is 90% happy with the arrangements, then it will be able to proceed. This is a great example of a win-win opportunity.’
Regional building societies compete via best buy rate tables in the prime-lending sector. But competition is putting increasing pressure on margins and the size of their mortgage books are dwindling.
Rob Cairns, chief executive of Furness Building Society, one of the interested parties, said: ‘It enables regional building societies to get together as a consortium to share costs and purchase larger mortgage books than they would have been able to do individually.’
All the regional building societies have been approached and an initial meeting is scheduled for March.