West Bromwich Building Society this week revealed that it had slashed its new lending in the first half of the year after becoming uncomfortable at the risky tactics adopted by rival lenders.
It said that pricing for some products “had reduced to an extent where the potential costs of the risks of bad debts were not sufficiently covered”.
In response, brokers have confirmed they have little sympathy for lenders who may end up losing money from overly competitive pricing, and urged them to look at other areas of the market that need serving, rather than continuing to focus on vanilla borrowers.
We work for our clients
Martin Stewart, director of London Money, said that the current battle for market share was reminiscent of 2007, but without the scope to make it all about price, noting that there is now a “scrap around the edges of criteria” which is where lenders may lose some control and allow greater risk than they’d usually be comfortable with.
Stewart added that brokers work for their clients, and so if someone wants to lend to them at low interest rates, they are not there to argue against it.
But he continued: “We do ensure our clients understand the mechanics not only of their mortgage but also of the wider housing market and the overall economy, and that prudence should be placed before exuberance at every opportunity “
Time to look beyond vanilla borrowers
Paul Flavin (pictured), managing director of Mortgages.Online, noted that with swap rates at all time lows, lenders have little room to play with on pricing, with the race to the bottom on rates proving costly.
He added that with an increase in what he termed “soft sub-prime” borrowers, lenders could be better off taking slightly higher margins by working with borrowers with mild adverse credit, rather than “paying to recruit the vanilla customer”.
He continued: “Surely it’s better to sell for increased basis points to someone who historically is a good customer, but has had the odd credit blip, than it is to sell for break even or at a slight loss just to gain access to a client with squeaky clean credit?
“There’s a need to play more with criteria exceptions than rate to meet today’s client profile yet still lenders are all about best rate/best client with market share dominating profit.”
Don’t be silly
James Mole, managing director of London Belgravia Wealth Management, said he had “no sympathy” for lenders who may overstretch themselves, adding that there is no problem with lenders becoming stricter with credit policy or increasing pricing so long as they offer a product that is in demand with borrowers.
He added: “Competition is good for a market and it’s silly to think otherwise.”