This month, we are sitting down with Jason Neale (pictured), founder of and managing director at Quantum Mortgages.

He launched specialist buy-to-let (BTL) lender Quantum Mortgages in 2022, and it had around £350m in new mortgage applications reported in the first half of this year.

Prior to working at Quantum, Neale was the head of BTL lending for more than two years, and before that, he was the sales director at Magellan Homeloans for around four years.

He has also held roles at Primis Mortgage Network, Infinity Mortgages and Advantage Home Loans.

How did you get into the mortgage industry?

Unlike many who fall into the mortgage industry, I’m one of the rare few who went out of my way to get into it. While working a boring back-office job and applying for my first mortgage, I was asked to go into the local Halifax branch for a first-time buyer interview.

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Having been fascinated by the adviser’s job – getting to talk to people about buying a home all day – I spent the entire meeting quizzing him on his job and how he got it, then left the meeting and immediately wrote to every local bank and building society asking for a job. C&G (now Lloyds) replied with a vacancy that I applied for, so I was soon doing the same job as that Halifax adviser I was so envious of.

 

The BTL market has been quite challenged over the past few years. What has launching into the market been like?

We certainly couldn’t have picked a more difficult time to launch a BTL lender. Within weeks of our launch, inflation started to rise sharply, resulting in significant swap rate volatility and the Bank of England base rate rising from 0.5% to a high of 5.25%. Then, of course, there was the disastrous Truss and Kwarteng mini Budget, which effectively shut the sector down for six months.

During these turbulent times, we continued to stick by our principles of common sense, doing the right thing and helping where we can. We were one of the very few lenders not to withdraw fixed rates, we never once considered not honouring pipeline applications and always gave plenty of notice if rates needed to change, during a period where many of the larger lenders’ behaviour was really poor.

Being a smaller independent lender really helped because we were able to react very quickly to what was happening in the market. Whether that be introducing new products or amending lending criteria, we had the ability to adapt within hours rather than weeks.

 

What has the BTL sector been like in the first six months or so of the year? Where have the opportunities and challenges been?

The latest UK Finance figures reported that BTL lending had halved in Q1 this year, but it certainly didn’t feel like that in the specialist sector. Our lending in the first six months has exceeded our predictions, mainly driven by the way landlords are diversifying their portfolios.

We are seeing the less experienced, accidental landlords leaving the sector, especially those who let a basic single unit house or flat. A combination of increased finance costs and the total loss of all tax allowances means some are now losing money on BTLs for the first time.

In contrast, professional landlords are shifting towards more specialist properties in the hunt for higher yields and are becoming ever more creative in the way they extract value from these properties.

This presents considerable challenges for lenders in the more vanilla/prime-type space, but specialist lenders with the ability to accommodate these more complex scenarios will benefit from a smaller but far more complicated BTL sector.

 

Quantum launched a 100% interest coverage ratio (ICR) deal for landlord mortgage prisoners last year. What has the reception been like from brokers, and what has the uptake been like from customers? Do you think more lenders may start operating in that space?

The Prudential Regulatory Authority (PRA) rules on underwriting standards do allow lenders to use a lower ICR calculation where borrowers are remortgaging with no additional borrowing, so it’s surprising more lenders do not offer this option.

We received a lot of positive feedback from the landlord and broker community, but take-up of the product was lower than we expected. While it was a good option for some, wanting to fix their mortgage immediately, many landlords were happy to sit on a more expensive variable rate during the rising rate environment to see where they land. Many will continue waiting now that the Bank of England rate is starting to come down, further reducing the demand for this product.

 

Quantum confirmed its securitisation transaction earlier this month and said this would become a more frequent issuer. What is the securitisation market like currently, as well as the wider funding market?

The securitisation market has been buoyant in 2024 with some of the tightest pricing we have seen for many years. Investor demand, particularly for UK BTL remains strong. With demand exceeding supply and originators able to pay investors a lower return, specialist BTL lenders can secure cheaper funding, which is obviously great news for the market as a whole.

 

Specialist lender product transfers have been talked about a lot in the industry, as the way lenders are funded makes it more challenging to do a product transfer. Is this still an ongoing problem, and what are the solutions?

The common misconception is that specialist lenders who fund loans via securitisation are not able to offer product transfers. It is certainly more difficult because loans that are sat in a securitisation pool are not designed to have their economics changed. It can, however, be done, as Quantum Mortgages and Keystone Property Finance have proved.

If the lender has an appetite to offer product transfers and is prepared to work a little harder to achieve it, it can be done.

Intermediaries should therefore consider whether it’s in their customers’ best interests to be placed with a lender who won’t offer a product transfer, because as we’ve seen in the past couple of years, it’s quite possible they could end up as a mortgage prisoner with no other option but to stay on a reversion rate – which they certainly won’t thank you for.

 

Wes Friedel was hired earlier this year to help spearhead Quantum’s bridging launch. Where does the firm see pockets of opportunity and how does this complement its BTL offering?

As a specialist BTL lender, we spend a lot of time being the exit for bridging loans, so the natural progression was to do the initial bridging loan ourselves. Not being experts in this space, we took a few months to research and investigate the market, and were frankly unimpressed with the lack of certainty and transparency, as well as the outdated processes and manual way of working.

Wes is creating a bridging proposition based on our way of working as a term lender, which offers a fresh approach to bridging, with total transparency, certainty of decision and a customer journey that matches the journey our brokers are used to when working with us. More importantly, as the lending criteria match our standard BTL criteria, the exit is ready-made. We can therefore take the customer through the entire journey, from an initial bridge all the way through to a longer-term mortgage.

 

What is the current headcount for the business and what are the recruitment plans? Are there any teams that the company wants to grow specifically, and why?

Our team currently stands at 40, with some additional new hires in the pipeline. The focus in the short term will be to increase our processing capacity so we can continue to meet the demand for our proposition. Our way of underwriting is more labour-intensive than most other lenders and requires a different skill set to your typical, less specialist underwriting. As a result, it’s our underwriting team that will see the biggest growth in the short-to-medium term.

 

What is the firm’s strategy around distribution?

We want every mortgage intermediary in the UK to be able to access our products in whatever way they choose. We are fortunate to have relationships with virtually every mortgage network, club and packager in the country, so our products are available to all, however they like to access lenders.

 

What would you want brokers to know about Quantum Mortgages?

We are genuinely different to most other lenders they work with because everything we do starts with a human being interacting with brokers and trying to apply some much-needed common sense when looking at loan applications. Because we are humans and not perfect, we sometimes make a mistake, so we ask for patience on the small number of occasions this happens while we correct things.

We still believe, however, human underwriting and decision-making provide better outcomes for everybody when compared to automated and computer decisioning, even if we do make the odd mistake.

I often think of us in terms of that well-known local supplier versus large corporation argument; i.e., when you buy local, you are helping a family to buy shoes for their children rather than helping a CEO buy another yacht. In terms of our stature compared to the large banks, we certainly fit into that category – we are more concerned with providing a good place to work for our people and helping our intermediaries place difficult cases rather than creating big profits for shareholders and buying yachts for bank CEOs.