In an exclusive interview with Specialist Lending Solutions, Shawbrook managing director of residential mortgages Jeremy Law revealed that the lender is no longer accepting accountant’s certificates as verification of income for self-employed borrowers.
The lender has also tightened evidence requirements for employed borrowers to include more bank statements and questions on affordability where necessary.
Shawbrook was reprimanded by the Financial Conduct Authority (FCA) during its thematic review of the second charge market last year when it was told to “tighten up income verification”.
In November the lender pulled products and increased its stress tests disrupting brokers and their customers and hitting lending volumes sharply.
But after also conducting its own review and overhauling its proposition, the lender has said it is keen to become a big player in the second charge market again, along with having significant plans for the first charge sector.
“At the back end of last year we took the opportunity to review the business and aligned that with the FCA thematic review,” says Law.
“So we’ve been in our rebuild phase for a period of time and are now coming out of that.”
The thematic review has lived on in the market with the Dear CEO letter asking for attestations from lenders that they are lending responsibly which, Law says, means all lenders had to do some more work.
“It’s not that we believe we aren’t lending responsibly in anyway, we believe all along that we have been, but when you have to do an attestation, the next question will be ‘why did you attest to it and where’s the body of evidence?’, so we continue to be focused on that,” he adds.
One-size fits all did not work
Law noted that the lender had “fundamentally changed the clarity of its proposition in the marketplace” and wanted to be clear about the type of business it was looking for.
This included relaunching the product suite and the matrix-based affordability approach around loan-to-value and credit score.
And the lender made some changes to ensure “scrutiny is done in the way that the regulation demands us to and is fair for the customer,” Law continues.
“Previously we were trying to do a one-size fits all style which doesn’t quite work – it isn’t fair on either side of the fence in terms of you want to do more scrutiny at times but then sometimes do things faster.
“So we want a really simple and sensible and fast proposition for when there are really clean cases which also allows us to challenge further – and that’s how we’ve set the proposition up.
“If you try to do one-size fits all it doesn’t work,” he adds.
Part of the changes to the criteria mean applicants are likely to be quizzed more about verifying levels of expenditure and may need to produce more bank statements to satisfy the assessment.
Self-employed borrowers will also no longer be able to use an accountant’s certificate to certify income.
“We have two or three different verification methods that depend on what sort of business it is,” Law adds.
However, Law admits that Shawbrook did not handle its communications and relationships with brokers well during this time.
“The first thing to do is say sorry and we’ve done that with the letter from our CEO,” he says.
“I’ve been out to visit lots of the brokers and will continue to do so. We were a little bit clumsy and that was around some organisational changes at the time and we didn’t honour our broker relationships the way I would like to see us do it or the way that we will going forward.
“We should have delivered it in a way that’s open and transparent but you learn from these things and that for me is what’s really critical,” he adds.
Law also believes the FCA’s review will lead to a better market for lenders and consumers, noting that this will ensure consistency remains and the market operates on a level playing field with product, service proposition and price winning borrower business.
As a result of the overhaul Shawbrook saw its lending drop considerably in the last six months compared to the six months before, but this is starting to build back up.
However, with the second charge market now more competitive than a year ago, Law admits it is unlikely that Shawbrook will return to its previous 20% market share. But he adds that the bank is keen to lend and has the balance sheet to do so.
First charge plans
Having completed the review of its residential lending business Shawbrook has plans for significant growth outside the second charge market.
It intends to enter the specialist first charge sector with an offering for borrowers who fall outside mainstream lending and wants to further tap in to its over-55s lending.
“We have huge aspirations in first charge lending,” Law continued.
“We are looking at and will enter the wider first charge lending space adhering to the Shawbrook mantra which is to serve the underserved in those markets.”
This will include those who are “credit blemished, have different circumstances, a different income profile or 12 months with a job which hasn’t been fully cemented-in but they have a strong track record.”
“Just where their documentation or credit blemish kicks them out of mainstream lending,” Law adds.
Shawbrook already has a later-life lending proposition and its ambitions for this include refreshing and relaunching in the next few months and broadening its distribution.
Law notes that the lender has learnt a lot from what it has seen and done so far in the market.
“We think this market has huge growth potential in the next few years and a specialist lender like ourselves has got huge potential to help steer and drive it,” he says.
“So we have significant growth aspirations, we will grow our product proposition and we will probably partner with some organisations.
“It’s slightly more complicated than standard residential lending business, but in the first instance we’ll tackle the more standard element of the market providing a broader range to a broader age group of people,” he adds.
To help support this planned first charge expansion and to facilitate growth in the second charge operation the lender is hiring several key figures for its residential arm including sales and commercial directors and a head of networks.
This will lead to further distribution deals with mainstream and specialist networks and mortgage clubs.
“One of the challenges of second charge lending growth is its distribution is very constrained,” Law says.
“The ones doing that business are doing a fantastic job, but we need to get more people focused on the market and its core purpose.
“As we grow our first charge proposition and distribution, I really want our second charge proposition to be a part of that. And I think that’s one of the ways we can help the market grow,” he adds.