Step One to ‘branch out’ beyond second charge by Q1

Michael Childress said the firm wants to grow to a “significant” size by operating across multiple segments in the UK specialist market, and was looking to launch a new product line by Q1 next year.

Step One already received financial backing from a round of US-based backers in May and Childress said he feels it is now adequately funded for its expansion.

The lender would not disclose its strategic plans and potential market segments it wants to enter, but Childress did not rule out any specialist lending areas.

Speaking to Specialist Lending Solutions, Childress said: “We believe our strategy will be specialist. We think bridging lending falls into that segment, as does the consumer credit market and some of the first charge mortgage market outside of bridging, but there is a limited number of segments we are [tackling at once].”

“[We don’t want to] rule anything out at this stage but it’s fair to say we will pick one and continue to add more prudently.”

Step One launched as a second charge mortgage and buy-to-let lender in Surrey in 2010. This August, it hired Target Group’s Steve Khan as head of commercial development to help kickstart its expansion.

The firm also has plans to increase its footing in the second charge market but said it does not aim to become the lead player in any segment.

Childress said: “[We are aiming for] a market share big enough to be considered relevant to all our intermediary partners but we never really set out to be the highest velocity, highest volume provider. We want to have a significant marketshare but not necessarily be the number one lender in any segment.”

Childress said he saw considerable growth potential in the second charge market after a brief slow down following the introduction of the Mortgage Credit Directive earlier this year, which brought first and second charge mortgages under one regulatory umbrella.

He suggested the first charge mortgage market had a current size of an estimated £200bn per annum, whereas the second charge market should be about 2-4% of that market. It’s current size is estimated to be about £800m-£1bn, so there is room for growth, he explained.

“If you look back in time, 10 years ago when the second charge market was at its peak, it was about 6-7 times the current size. It’s seen a lot of growth in the past five years but it’s still only a shadow of its former self,” he said.

“The market slowed down a bit as it digested the new [MCD] rules. Since then it has picked up and recovered markedly. We feel good about it.”

But it’s not all about expanding. The firm also invested in its technology after its latest funding round by PIMCO’s California-based Bravo Fund II, alongside Credit Suisse Asset Management’s securitized products group and other private investors.

It plans to reveal some of its enhancements in due course. “In addition to looking to grow we make sure we are focusing on other ways we can position our business to be more competitive,” Childress said. This included a look at “which technology we are using internally and to facilitate relationships with brokers and customers.”

The firm also launched a new range, lowering rates on its second charge products from about 6.9% from 8.9%, in May.

The firm’s clients typically have a good credit profile as the firm has a strong focus on affordability. “We feel like we are planning responsibly,” Childress said.

However, Step One will also take clients which don’t fit into any particular box. “Our USP is we are, and we always have been, fundamentals based. We are not a computerised lender and do not rely on a fixed score. We look at more options than some others to underwrite business,” Childress said.