Speaking to Specialist Lending Solutions, Michael Street, founding partner at Word On The Street, said that he, along with his partner, had been building the brand and had grown it to a team of five.

The company recently hired Danielle Beswick as a case manager to manage growing enquiries and applications.

He said that it had an “ambition to continue growing” and become a “go-to broker in the industry”.

Street said: “The expectation in the short term is to take on at least two more brokers before the calendar year end, but I’m not too concerned if that doesn’t happen. Longer term, our aim is to build a business [that] is a go-to in the specialist lending industry across the full suite of products.

“That will involve having a strong commercial division, which will cover commercial term mortgages, development finance, bridging and buy-to-let [BTL] mortgages, and then long term, the expectation for me is to sell the business to a larger fund, or something like that.”

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Street noted that “credibility and sustainability” were the most important things for the firm, and it was focused on “policy, process and procedure”.

He explained: “Policy is what we want to do, and the process is how we do that and what that looks like in practice, and then the procedure is having it written down. So, for somebody starting in our business, we have a flowchart or a process map [that] says, once you’ve done that, you then do this, and it is micromanaged in the sense that we’ll say you need to do these things, but it’s a guide of how somebody can get from A to B to C without making those mistakes.

“That can happen, and of course mistakes can happen, but we’re here as leaders, as educators, to be able to rely on and to talk to and to have open conversations with, and for me, that’s how we’ll build a successful business in the years to come.”

Street noted that there were a lot of mortgage networks and clubs that profess to offer educational and compliance resources and support, but that this sometimes was not the reality, as brokers could be “left to their own devices” and “without any real idea of what they’re doing”.

“The only person that affects is consumers; they’re the only ones that will be out of pocket and will lose out. We could be talking significant amounts of money,” he said.

 

Mainstream brokers still have ‘hesitation’ about specialist lending

Street said that as he started his career in specialist lending, having worked at Together for around four years and at MS Lending Group for over a year, he doesn’t see it as complex and it’s “almost second nature”.

“I do quite enjoy having conversations and being in a position to be able to educate people on what specialist lending is, what makes a transaction complex, and how we overcome those hurdles,” he said.

When asked if more brokers may consider specialist lending, Street said that there was an “element of uncertainty and hesitation” and a “lack of education” for brokers who operate more in the mainstream space.

“I think there is hesitation, and I think that is because of the unknown. They don’t know which lenders… will do what, they don’t know why they’ll do it and they don’t know what criteria [are].

“It’s about having those relationships with those lenders, which is important in this industry because criteria [are] one thing, but understanding how a lender looks at a transaction is completely different to what the criteria [say] on paper,” he added.

 

Specialist BTL business strong

Street said that in the specialist lending sector, it was seeing a lot of specialist BTL business coming through, explaining that there were a lot of landlords who have portfolios on variable rates who wanted to move onto fixed rates.

He said that this was a “hangover” from the mini Budget, as people had chosen variable rates but were now wanting to refinance onto fixed rate deals. Within that, he said more people were choosing five-year fixed rates.

Street said that many portfolio landlords were moving to specialist lenders, as many did not stress test the full portfolio.

For instance, for a landlord with 10 or more properties going to a mainstream high street lender, their whole portfolio will be stress tested, so in many cases, the deal did “not fit” due to higher mortgage rates increasing the bar for the stress test.

“Landlords are being forced, not necessarily by want but by need, to move the product elsewhere to more specialist lenders [with whom], whilst the rates are higher, they’re actually able to refinance a larger amount because they’re not having the background portfolio stress test,” Street explained.

When asked what portfolio landlords were using refinance for, he said it was a “mixture”, but one reason was wanting to switch onto a fixed rate deal from a variable rate and the other was to take advantage of landlord exits.

“Landlords are refinancing at max loan to value [LTV] to pull out cash in order to capitalise on what we’re starting to see in the market, which is smaller landlords and smaller portfolio landlords exiting the market because they’re being stretched,” he explained.

 

Bridging ‘extremely busy’ but development finance ‘slow’

Looking at other areas of specialist lending, he said that now the market had “settled”, bridging was “extremely busy”.

He continued: “Lenders are wanting and putting more around this on ensuring that the exit is strong, whereas historically if we told them that it was a refinance, they would just take our word for it because rates were next to nothing and refinances were happening thick and thin,” he noted.

Street said that in the post-Truss era, lenders were asking for more details about the refinance, such as which lender they would be looking at and whether they had submitted a decision in principle (DIP) yet.

He noted that development finance was “extremely slow”, especially for the “biggest ticket” deals.

“Costs and borrowing are obviously still quite high, therefore the larger deals are being squeezed, especially in the North West, where you’ve got lower land costs. That’s killing a lot of transactions and a lot of deals, because South of the Watford gap, your land costs are typically higher.

“That helps support the numbers on a bigger transaction, whereas in the North West, they’re being squeezed a hell of a lot,” Street explained.

He noted that the effect of this was that it was a “bit more difficult to find lenders, not who want to do business, but who are actually capable of doing so because of the margins that they’ve got to return”.

“I always thought there was an opportunity for lenders to do more in the bridge to term space, so products where you’re offering a bridge with a guaranteed ability to refinance onto a term should you not be able to refinance elsewhere.

“There’s a couple of lenders who have started to open up that market as well… so that is a space where I think there is more opportunity, but not a lot of lenders understand it,” he said.