This week OakNorth announced it would be targeting high net worth individuals, SME business owners and borrowers with unusual income streams in its move into residential mortgage lending.
It follows the news earlier this month that Perenna, a pension-funded intermediary lender, plans to launch long-term fixed deals of at least 20 years when it starts full lending operations at the end of this year.
Brokers have welcomed the new additions to the market, but suggested there are still significant gaps in the market that aren’t being sufficiently well served and which may be an option for future entrants to the mortgage lending sector.
Hitting the right spot
James McGregor, director at MESA Financial Consultants, said that the two banks were showing an innovative approach, noting that Oaknorth in particular has “hit the right spot when it comes to our client base”.
He explained: “We have a huge bank of clients that are asset rich, that have successful companies but are still unable to reach tick boxes of the high street or even the private banks.”
Jane King, mortgage consultant at Ash Ridge Asset Management, said that it was an excellent idea for Oaknorth to target borrowers with complex and numerous income streams, noting that these clients do not fit a ‘tick box’ environment, with even some specialist lenders struggling to serve this market properly.
She said: “I have had more than one underwriter unable to read a set of accounts in the past and most do not accept retained profit which I feel is an important consideration.”
Meeting brokers is key
Rachel Lummis, mortgage adviser at Xpress Mortgages, said that it was always welcome to see lenders moving into new markets, and argued it was key for lenders to get in front of brokers to run through what they are doing and how it can help their clients.
She said: “We are all busy going about our day to day businesses using our existing panels and so unless the new lenders come door knocking to introduce themselves and their products, it might be some time until we notice them.”
Lummis noted that two lenders who had recently moved into new markets had visited the brokerage to explain the new proposition, which had made the difference “as the products were really good and so we hit the ground running”.
“This gives us an edge as we have products that not many know about, but no doubt it helps the lender get in to the swing of testing out their systems and processes,” she concluded.
McGregor said that he is always happy to “jump in and try them out” if a new lender appears to have something different to offer, even if he has had little experience with them in the past.
He explained: “That is where our value comes as a broker, having a full broad knowledge of lending markets. It is important to understand where the lender’s funding line is coming from though.”
King added that she tends to register with a new lender immediately “so that they are on hand if I need to use them”.
What needs to come next?
McGregor suggested that one area for lenders to consider next may be “lifetime rolled up residential mortgages”, which would essentially be equity release deals but with the flexibility of a traditional mortgage.
“For example, borrowers wouldn’t have to pay huge penalties for coming out of the product as you do in equity release. I believe this type of product would hugely help the aging population in affluent areas,” he continued.
King said she wanted to see more options for contractors on daily rates, as well as higher loan-to-values on new build apartments, which she suggested were “under served at present”.
“I also feel that mortgage prisoners are getting a bad deal and they should be offered options to switch to better rates,” she concluded.