‘We’ve got a year-long pipeline for product launches’ – SLS interviews Precise Mortgages’ Alan Cleary

The move drew much attention but also signalled the start of a new era for the business, as Precise Mortgages managing director Alan Cleary explains.

“You don’t just turn up one day, ring the bell and now you’re listed,” Cleary tells Specialist Lending Solutions.

“We entered a planning phase two years ahead of listing, then got into ‘as if listed’ status – so consequently the day you list you’ve actually been acting as a listed company for a year and a half before.

“There is more corporate governance, but in terms of day-to-day operation and how brokers see us, there’s no change.

“And our strategy remains the same – we are catering to borrowers that the high street lenders do not service,” he adds.

Won’t chase irrational markets

The lender’s 2017 results are due in the next few weeks, so Cleary is cautious on some topic, but the stock market listing does allow Precise to think about the next stage in its growth strategy and provides access to a greater pool of investors.

“We haven’t got any goals on market share, but we have business targets, although those are as much around credit quality as volumes,” Cleary continues.

“Second charges are a classic example – in 2016 we wrote less than the year before because we didn’t want to chase what we saw as irrational pricing. We’re not going to go chasing markets for the sake of it.”

What this means is Precise needs to be prepared to enter new markets as they appear, leaving behind those which it sees as not viable.

“Part of the role of being a specialist lender is sometimes you’ll exit a market that isn’t displaying the right quality or margin that you need so that’s why you need new niches to go into,” says Cleary.

“Our product development team has got a pipeline a year-long for things we could launch and may launch as we see the market unfold.

“We said last year that we will develop our pipeline of product types as the market evolves – it’s what a specialist lender does.”

Early adopter

Over the last 18 months the approach of moving into new markets early saw Precise target the specialist parts of the buy-to-let market.

That investment has paid off as those areas such as Houses of Multiple Occupation (HMO) and servicing limited company arrangements have seen real growth with landlords hunting for yield and moderating the incoming tax changes.

With the portfolio lending guidelines also coming in to force last October, this market has been particularly turbulent.

But Cleary is particularly frustrated with some lenders who have made potentially unsustainable changes to their income coverage ratios (ICRs) distorting the market.

“I remain concerned that Prudential Regulation Authority (PRA) underwriting guidelines do not have to be adopted by all lenders as this presents the opportunity for regulatory arbitrage,” he says.

“I see some lenders using ICR calculations that do not meet the new standards which worries me and no doubt will also cause concern if those lenders securitise the loans.”

Create a dialogue

Another of the rising concerns within the wider economy in general is the growing use of credit cards.

Many reasons have been cited for this and the Bank of England has been clear it is watching the market closely.

However, it appears largely content with current practices and who is holding the debt.

But how does this affect mortgage lenders and how are they preparing for any issues?

Cleary notes credit card debt has always been a concern but believes the mortgage market is better equipped for it now because of technology.

“Our teams can track the credit status of customers who are not in arrears,” he says.

“If their status is getting worse as they are taking on more debt we can talk to those customers before they get into a problem and over-extend themselves.

“We’re not ringing up saying, ‘I think you’re going into arrears what are you doing about it?’ It’s more supportive, explaining if they run into issues who to contact and just creating a dialogue.

“That’s not unique to us, I think lots of lenders are doing that,” he adds.

Cautious bridging

Precise also takes an interest in the bridging and second charge markets, although Cleary admits these are not its biggest areas of business due to their potentially risky nature.

“Lenders need to be careful with bridging loans – we’re very cautious,” he says.

“We do the more residential transactions where chains have broken down, the lighter, less complex end. We’ve lent over £1bn in bridging and not lost a single pound.

“Some lenders do write what I consider pretty racy loans, but that’s their problem if it goes wrong.”

But Cleary notes that the market does control itself to a certain extent as demand ebbs and flows. “Consumers also regulate themselves,” he continues.

“We’ve seen big ticket London bridging loans become a lot less prevalent – people are just not asking for those loans right now.”

It’s a better place now

Cleary has given up predicting when the second charge market will take-off and believes this will probably not happen until interest rates start to rise and people look at refinancing and getting their debts in order.

However, he agrees it can be an attractive market for the lender when conditions are right; for example, Precise targets low LTV prime customers with good incomes and good credit records and has seen good results from that.

And while the second charge sector has been the subject of much scrutiny over recent weeks, Cleary believes regulatory action is improving the market.

“The regulator has stepped up the quality of those loans being written, taken out the excesses, and so it looks better quality,” he says.

“Brokers are coming around to it, understanding that its good for customers who can afford the loans and the rates are low.

“It’s a better place now, albeit smaller. We’re never likely to see the secured loan sector return to say £5bn, but could it be a £2bn market as long as the credit quality is good,” he adds.