In an already crowded market, what do newcomers need to be be doing to stand out? Specialist Lending Solutions asked intermediaries what’s on their wish list.
Scott Thorpe, director, London Money
“We have already put several ideas to the lenders after consulting with mortgage intermediaries and have offered to facilitate meetings between the mortgage broker and lenders so they can understand each other better.
“Our brokers are asking for two main call to arms. Firstly, there is scope for a well thought through interest-only policy and secondly, second charge mortgages that are allowable on day one purchase completions
“Behind this we would love to see some real innovation and product disruption. I think it is fair to say there is still too much smoke and mirrors in the marketplace and exaggeration over the cost of processing a second mortgage application.
“I would welcome a lender entering the sector with a clear remit to close the gap between first and second-charges in terms of fees and criteria. If that means a serious haircut in terms of commissions then so be it. We need to remember that mortgage brokers are used to doing a £50,000 first charge loan and receiving not much more than £200 as a procuration fee. Why should a £50,000 second charge mortgage offer an equivalent fee of £1,000 not to mention a master broker fee of anything up to £5,000?”
Paul McGerrigan (pictured), chief executive officer, Loan.co.uk
“I’m well aware that there’s only so far lenders can go when competing on rates before it becomes unfeasible, but what about service, technology and solutions that help our customers’ real day to day needs? New lenders can start with a blank canvass and should do. These are areas that lenders – existing and new – can continue to improve on;
“Firstly, lenders need to look at the innovation in other sectors and lead with genuine technological development. For example make processing a case as straightforward as possible. As an industry we are not good enough at making life simple for the customer. Today people live on their smartphones yet as an industry we haven’t yet fully realised their potential.
“Secondly, Open Banking next year will be a huge game changer and will highlight that in a sector that creates more customer data than perhaps any other industry, there is relatively little diversity in product offerings and the industry has little reputation for customer-focused innovation. Open Banking will open the way to access ready-made services and new customer data pools, help reduce costs, and ultimately and importantly improve customer experience.
“Finally, what we are particularly hungry for in a customer centric environment are solutions on the best way to increase awareness of niche products, for example high-net-worth products, more self-employed products (not self cert), and niche hybrid products.
Lucy Hodge, managing director, Vantage Finance
“The second charge market has grown since its inclusion in the FCA’s supervision regime last March when the Mortgage Credit Directive came in, so it’s no surprise that lenders are considering it as a sector if they’re not already in it. This particularly makes sense for West One given its ownership, with Enterprise Finance having a long history in the second charge market.
“I would however sound a note of caution. Both bridging and buy-to-let have grown rapidly over the past 10 years and lenders have not had to look elsewhere for growth opportunities. The past couple of years have seen lenders diversify into development and commercial in order to maintain growth. Second charge offers another good string to any specialist lender’s bow, but it should be considered for the product it is. Secured loans have a different set of underwriting risks attached to them, so I’d hope that lenders choose to compete in a responsible way, through innovation rather than a price or LTV war. A race to the bottom with rates or the top with LTVs is not a good long term outcome for the market. That said, there is room for lenders to compete on some other criteria. For example, taking a flexible view where appropriate on income for customers who can afford repayments would be a welcome move in the second charge market.
“Getting staff within the lender trained up and experienced in a new product area is also important as soon as possible as brokers are likely to take clients where they know they’ll get the best deal and service.”
Paul Day, sales development director, Clever Lending
“It’s no surprise new lenders are looking at entering the second charge market. Although business volumes haven’t had the meteoric rise that many predicted on the back of MCD, it certainly is growing at a steady pace. This is backed up by recent Finance & Leasing Association figures that are showing good growth in the sector, and with arrears and delinquency down, it’s a healthy area of lending to get involved in.
“There is a very active remortgage market, but not all clients will fit this product type and the opportunity to offer and explain second charges should be given too. More education is still needed to provide second charge options but the word is getting out there and any new lender would have to actively promote education.
“While seconds tend to have greater flexibility in reasons for borrowing, any new entrants will need to cater for complex income situations or blips on a credit record. With CCJs continuing to rise and more people working in the ‘gig economy’ a new entrant would have to be savvy on lending criteria to take these into account, alongside offering competitive rates. However, by underwriting each case individually it’s often possible to find a good client outcome, particularly where in the past there has been a strong repayment record.”