Complex prime is a real opportunity for the small- to medium-sized lenders, which would create more opportunities for intermediaries as a result.
However, I can understand why some people don’t like the expression, because it is being misused.
I am very concerned that the complex prime segment is in danger of being hijacked by those seeking an alternative term to sub prime. A hijack will only reduce the market opportunity by clouding thinking and stopping lenders innovating in this area.
Back to the beginning
To give some clarity to complex prime, it is useful to go back to its origins. I first discovered the term some 11 years ago, when I joined Sun Bank, now The Mortgage Works. Complex prime was its niche at that time, albeit hidden from the mass market.
Now, the story goes that the term was coined by AToM’s Vic Jannels, although there were one or two at Sun Bank that liked to take the credit. (My money is on Vic.)
The concept of complex prime was a brilliant one; it was heartbreaking to keep it hidden.
So, I took it to the wider intermediary market and media and grew in awareness and grabbed the attention of other lenders. With Sun Bank being taken over and the market entering a stage of rapid growth, the market moved away from it, so it again became a bit of hidden treasure.
That treasure remained hidden for several years. In the new market, it has got back on the radar, as people are now seeking new niches.
Recent research by Charterhouse Research showed that intermediaries were experiencing a growth in specialist lending. Complex prime is certainly a specialist niche and one I know AToM are doing very well in, because it understands what it is about. If others get to grips with complex prime, then they too can reap rewards.
What complex prime isn’t
Complex prime should not be confused with sub prime. Hijacking of the complex prime niche and blurring definitions will help no one; it will not help lenders, intermediaries or the market as a whole.
Complex prime is all about prime cases that do not fit neatly into modern day processing systems. It is not vanilla lending. This could be due the applicant’s personal circumstances or property type, for example.
My favourite example is a case of a retired airline pilot, who was still in his early 50s. His pension was bigger than most people’s salaries and rather more certain than a salary too.
However, being retired, the computer said no. Added to that was that he was looking to remortgage to raise some capital to build a small airline strip in his (big) back garden.
You can see why systems-led lenders would shy away from such a case. Yet, the LTV was only about 30%.
Another good case was a remortgage of 80-odd buy-to-let properties, with SPVs in place. Now that was complex. Another was someone looking to buy a lighthouse to convert into their home. Each case was unique.
Stop fishing in the same pond
Complex prime requires the skills of underwriters who are able to take a holistic view to lending and are not led by a rule book. It is all about using those little grey cells.
With cases taking time to examine, it is not appropriate for lenders looking for big volume. Yet, it is perfect for smaller lenders.
The trouble at the moment is that everyone seems to be chasing the same type of business; they are all chasing the same fish in the same pond. However, there are lots of other really nice fish elsewhere, who are looking for a hook.
The market is crying out for some creative market segmentation. Complex prime is one such segment that offers real opportunities for certain lenders looking to differentiate themselves in a crowded market. It does not have to replace what they currently do, as it can complement existing products and processes.
What about intermediaries?
Complex prime offers lots of opportunities for intermediaries. By nature of the case, the applicant is very unlikely to pop into the high street, but they need lenders to expand their thinking into this area. Without a few more lenders operating in this niche, it will be difficult.
The sector offers the type of opportunity that is known as win-win. It can be a real winner for the right type of lender and for intermediaries. We just need some bright people to open their eyes and for others to stop trying to hijack the world of complex prime.
Jeff Knight is managing director of Tonic Marketing
