Exclusive: ‘When the winds of change blow, some build walls – we’re building windmills’ – OSB’s Hall

Last year, OSB Group reported an underlying profit of £591.1m, a record for the group. Different segments of the business all saw uplifts. For example, the buy-to-let section saw a 14 per cent rise in its gross loan book to £17.2bn. Meanwhile, its residential arm saw originations of £1,325m during the year, up from £1,116m in 2021.

However, despite this, group managing director Jon Hall is not taking anything for granted. In an exclusive interview with Specialist Lending Solutions, he discusses the dynamics that fired their success; the growing trend for consolidation between mainstream and specialist lenders and how the group will meet the challenges for this year and beyond.

Last year saw a strong set of results across the group, what were the key contributors?

We went into the year firing on all cylinders. That meant we wanted all groups to make regular product enhancements. We were looking to make two product enhancements every month. And for each brand, we built further on our intermediary relationships.

We implemented dual branding so we could operate Kent Reliance and Precise Mortgages together, and built further on the office business development manager (BDM) live chat broker telephony side, so intermediaries could deal with us in any way they wanted to and made sure our groups were fully joined up.

We also introduced a high-net-worth (HNW) team to look at our back book of borrowers and work with intermediaries to explore what HNW borrowers are looking to do.

I believe that 2022 was the first year since the integration that all lending brands have worked together and we got that message across very clearly into the market.

We invested heavily in our people including marketing, underwriting and servicing teams for product transfers and made sure we were honouring our pipeline and were consistent with the product withdrawal process. That way intermediaries were able to take a much more confident position in dealing with OSB across our various lending brands.

The other aspect of note came from our deposit-taking business, we have a deep customer base in terms of deposit-raising through our brands.

We were able to grow our deposit base by 13 per cent, retaining 90 per cent of maturing deposit customers, which gives us the confidence to withstand the more volatile conditions in the lending market.

As a specialist buy-to-let lender, where do you see the opportunities in that specific sector of the market for the remainder of 2023?

Professional landlords and those with more complex residential needs and credit situations or commercial borrowers are still looking to take advantage of opportunities in the market.

We’re clear that our target market is professional landlords. And these ‘landlord leaders’ are buying more than selling and seeing the opportunities to take on properties that others are putting on the market. However, they are also rationalising their portfolio – they are bringing other properties on board including a mix of residential, semi-commercial and even commercial.

It should be a year of progression for landlord professionals – thinking about their wider portfolio, and what tenants want. They will be investing in their stock and individual properties.

That said, it is likely to be a smaller market for BTL this year. However, off the back of £56bn lending last year, even a 20 per cent reduction is £40bn-worth of business and that is still material.

Given Barclays’ and Shawbrook’s recent merger moves into the specialist market, do you envisage more consolidation in the specialist market and what will it look like?

If you look at those specific examples, Shawbrook and Bluestone had a long-standing relationship, so it made sense [for Shawbrook] to bring [Bluestone] into ‘its stable’. You had a ready acquirer and a ready seller. You will probably see a closer working relationship where a non-bank lender is given a funding line and that asset is brought under the larger brand.

When you have quite challenged capital markets, those opportunities for non-bank lenders to get closer to bank-funded lenders will continue.

However, that only really works where the bank is not already originating in that space.

The Barclays/Kensington deal was a little more ‘interesting’, as you have a mainstream high street bank looking at getting into the specialist lender market. And Kensington was of sufficient scale to interest Barclays. There probably aren’t many organizations of that size available in the market.

And, if you look back to 2021, Starling took over Fleet. Starling didn’t do mortgage lending and saw specialist lending as an attractive market, which it is, and entered the sector through acquisition.

These three examples show that there will always be individual circumstances, but from a macro perspective, it’s non-bank lending having access to funding over the long term that will drive consolidation.

The OSB group has a number of companies under its umbrella and has joined up brands such as Kent Reliance for intermediaries and Precise Mortgages – how do you successfully bring together two businesses?

For us, it’s about having a common objective and brands have to operate in a harmonious way – however, one cannot block the other. Some like one brand, some like the other. Precise and Kent, for example, both offer a buy-to-let product and a lot of intermediaries like dealing with the specific brand, so we offer access in a way that intermediaries respect and we don’t impose friction.

There is always more that you can do to offer the benefits of the businesses to different clients – and we are looking at a future where you can move between brands in a more seamless way. Aligning customer-facing platforms is the next space for us.

I am very impressed with the way everyone has come together under the OSB banner, it’s clear that we see ourselves as one business. There is a clear alignment. We are a single group with a common objective.

What is that common objective?

Our objective is to be the number one specialist lender but how we go about that is all important. Our values are clear. One is ‘stronger together’ and we know we make a difference to intermediaries, applicants and deposit takers.

Another value is stewardship – ‘doing the right thing’ – and exploring how we operate from an environmental, societal and governance (ESG) perspective. Doing the right thing is what you do operationally every day but it’s also about leaving the environment and community in a better place when you are operating within it.

In terms of people, you noted that OSB invested heavily last year, will this continue in 2023? And how important is diversity and inclusion (D&I) in the hiring process?

We are growing our colleague base in a number of areas. It’s all part of having the right people in the right place where it matters to customers. You can’t underinvest in people because that investment pays back in the future.

Looking at the D&I side, it’s about ensuring you have a very open and inclusive organization. We have recruited someone into a specialist D&I  role but the onus is not just on them. All the leaders in the organization accept we have a responsibility to promote a diverse workforce in terms of how people think and their backgrounds and philosophies. This is a safe space to share their differences. Diversity comes in lots of different ways – it’s in the mind as well as the physical. You need to reflect the society in which you are operating.

What will be the major challenges for the remainder of 2023 and how well is OSB positioned to overcome them?

According to UK Finance, this year, gross lending on the residential side will be down 15 per cent and buy to let will fall 23 per cent, that is driven by affordability pressures, particularly in the first-time buyer market – that feeds everything else.

The volatility and rapidity we saw in rate rises in Q4 2022 have moderated somewhat, but those affordability pressures still remain and this knocks confidence in the property market.

We have given guidance that we are looking at five per cent net loan book growth this year. The confidence to do that comes from being a deposit taker with access to strong sources of liquidity.

We are also seeing a high level of lending, particularly when it comes to product transfers (PT). There’s close to £600bn of reverting balances in the UK this year, so PT and remortgaging is probably going to be stronger through 23/24. We have a strong PT capability for existing borrowers and a strong remortgage capability for those who want to come to a well-funded specialist bank.

There’s a proverb that says: ‘When the winds of change blow, some build walls and others build windmills’, and, at OSB, we are building windmills, and we do that because we have confidence in our foundations.

We are transitioning to a higher interest rate environment, but only back to where we were 15 years ago before the global financial crisis, so it’s not like anything we haven’t seen before.

I think the tech advancements we’ve seen since the pandemic will only move quicker. Customers’ expectations have shifted over the last 15 years in terms of engagement and service, so we have to keep investing in that.

We need to be prepared to invest and deliver not just today but in the future. If you don’t invest to move forwards, you are going backwards.

I think generally the specialist sector is well positioned, we have an understanding of what our customers and intermediaries want to do and we have shown that we can meet those expectations.

I think the mainstream market is narrowing down in terms of who it stands for and how it stands and more people fall outside of those narrowing structures and the specialist market is in a good position to pick up those [people] but it has to keep doing something distinct. It has to offer something different.