But not for all borrowers. Nationwide said it will reject mortgage applicants who have lived abroad any time in the past three years as part of an attempt to streamline its computer processes. Soon after, Dudley Building Society’s chief executive slammed lenders for their inflexible computer underwriting models.
So will niche lenders continue to compete with high street banks in a recovery? And if so, who will they serve?
For this week’s Marketwatch, our commentators are:
LMS chief executive Andy Knee, who predicts mainstream lenders will discard less popular products as they invest in technology
Springtide Capital managing director Henry Knight, who says banks are excluding asset-rich borrowers with unusual circumstances such as expats
Complete FS director Tony Salentino, who suggests there is a huge market for advice on specialist products
Andy Knee, chief executive, LMS
The economic downturn significantly reduced access to funding and forced many smaller lenders to shut up shop. As a result, the majority of lending since has been carried out by mainstream organisations. However, as wholesale funding markets begin to open up again we are seeing lenders returning and the accessibility of credit improving.
In order to meet regulatory requirements outlined in the MMR, lenders are going to have to make significant investments in technology and as a result, we are likely to see many larger organisations reduce the breadth of their offering. They will need to conduct cost-benefit analysis, look at the potential returns, and prioritise accordingly – so products that they deem to be less popular or too niche are likely to fall by the wayside. But this is not necessarily a bad thing.
This will provide a window of opportunity for smaller lenders to step up and fill the gaps in the market. Just because the bigger players have taken a step back from these more specialist products does not mean there will no longer be demand for them. As it will prove costly for these smaller organisations to source business directly, brokers are going to play a pivotal role in directing clients their way.
Henry Knight, managing director, Springtide Capital
Since the financial crisis, niche lenders have been helping borrowers unable to meet the more stringent criteria of the major high street banks and building societies. Although their overall levels of lending are still very low in comparison to the high street banks, they will play an important part in any recovery
In our experience, there are a few groups of people who will continue to find it difficult to borrow from high street lenders. Self-employed people are often rejected, as they are unable to demonstrate a certain number of years’ accounts, profitable trading or simply the way they remunerate themselves. The expatriate community will also continue to struggle, as they do not have any job or financial history within the UK – despite being typically cash and asset rich buyers.
The third major group that continue to have difficulties lending from high street banks are those aged 65 or older. The majority of lenders will not even consider this group as suitable borrowers. Many are left stuck with interest-only mortgages that will need to be switched to repayment across a shorter term. This makes it harder for them to stay in their homes.
The streamlining of banks’ systems will inevitably exclude many niche borrowers from the mainstream mortgage market. But the high street’s loss is fast becoming the niche lender’s gain.
Tony Salentino, director, Complete FS
The lending market has polarised. Large high street lenders offer a strictly enforced computer-generated underwriting business model. Whereas the smaller lenders, particularly among the mutual building societies, have taken the view that credit scoring is not a satisfactory methodology.
Niche lenders and mutuals have recognised that human intervention in the underwriting process provides more flexibility. Therefore these lenders have been able to help customers who have effectively been ostracised by the high street.
Clients hit by the ‘computer says no’ mentality might have had a historic problem by way of minor or one-off credit problems. Or they may be part of the ‘pariah’ groups such as older borrowers. Or those who are on interest-only and find their future blocked by a high street that has withdrawn interest only as an option. Of course, habitual non-payers will find the door firmly closed no matter where they go.
The vacuum created by banks ‘streamlining’ their offering has seen the growth of specialist lenders like Precise Mortgages, Kent Reliance, Magellan, and GE Money, as well as the mutual sector.
The market for specialist products and criteria is massive. Advisers have a clear opportunity to offer a bespoke service to clients who do not fit into the neat boxes the high street lenders wish to focus on.
