There is no doubt that in the wider lending landscape ‘funding ain’t what it used to be’.
From the pre-credit crunch, securitisation-backed lending volume highs of four or five years ago, we now find ourselves in an environment which would be unrecognisable to those who operated back then.
The change certainly didn’t happen overnight. However, it came quickly and dramatically and, even though the overall market is slightly more positive than it was during the darkest of days post-crunch, we are still very much in the aftermath of those seismic economic events.
Politicians, regulators, economists et al, are still trying to come to grips with what went wrong and how the situation can be stopped from ever happening again.
The reality of this ongoing post-mortem and corrective surgery is that we now have something of a market still under the anesthetic.
Limited lending is the name of the game for those still active in the mortgage and loan marketplaces, as they seek less exposure to risk and come to terms with the need for far greater capital reserves in order to lend in the first place.
Couple this with the stagnant wholesale markets and retail deposits nowhere near big enough to meet funding expectations, and it is no wonder that brokers and their clients are struggling to find finance.
The situation, however, is not all doom and gloom.
Yes, the mainstream mortgage market is still dominated by a small number of big banks that are not jumping over themselves to lend. Yet, there have been signs in recent months that additional funding is making its way to market.
We have seen lenders such as Aldermore and Precise move into the mortgage market, and in sectors such as buy to let there appears to be a far greater level of activity and ambition, no doubt helped by a far more landlord/developer-friendly environment.
Certainly, new lenders are targeting their available funding far more efficiently than in the past; a scatter-gun approach to lending will get you nowhere.
Also, while the mainstream market has a diminished appetite to lend, there has been a considerable rise in the number of short-term and bridging lenders that have been willing to fill the gap left by the traditional sources of finance.
In this marketplace, those looking to maintain a presence, beef up their portfolios or develop new projects have had to look elsewhere given the stance of the mainstream. It is to short-term lenders like Tiuta that they have turned.
Funding here has been strong with many viewing a profitable sector as the place to be. The news over the past 12 months has been positive, with increased funding levels available to many of those active in the short-term lending market.
All well and good, but the wider, residential market could certainly do with an injection of either new entrants or a greater inclination to lend from those already active.
This appears to be happening on a number of fronts, albeit slowly.
Earlier this year Tesco Bank announced that it would be launching its mortgage proposition in 2011. While it appears to be only offering this direct to consumers, it should bring in funds which will undoubtedly flow through the chain.
We have also recently learnt that new applications to carry out mortgage lending reached double figures in the last 12 months. How many of those will come to market during the rest of 2011 is a moot point.
However, the fact that organisations are viewing opportunities in the market and have the confidence to act on them is one that should be welcomed.
It is also important to factor in the time it takes the FSA to approve such authorisations. The regulator aims to make a decision within 12 months, so we should not expect vast numbers of new entrants to announce themselves anytime soon.
Of course, this is not a decision that any organisation will enter into lightly.
The changing regulatory structure and the responsibilities that are placed on lenders are considerable areas of concern; the news that there are no plans for any Mortgage Market Review (MMR) changes this year is a good sign.
It may well be that those looking to enter the market take this period of relative regulatory stability and act upon it.
On the other hand, we have little idea what MMR proposals will make it to the rule book and therefore prospective lenders will have to make sure that they are ready for all eventualities.
There is much to consider and much that could change, and new entrants may well decide to take a ‘wait and see’ approach before taking the plunge.
With such a variety of factors to consider we should perhaps not expect too much change to the status quo over the next six to 12 months. Any new entrant will be welcomed, particularly those with an intermediary-led distribution strategy.
However, mitigating risk will be the name of the game for all lenders – existing and new – and while we are seeing products creep up the risk curve, the main focus will (and should be) on responsible lending.
Being responsible in this case is likely to mean existing levels of funding and lending, particularly for mainstream residential, with a good chance that more niche sectors will benefit from renewed interest.
Where there is margin, we will undoubtedly see more action.
