Invigoration of economy and markets means growth for specialist lending – Pike

The reality is that following years of austerity, and more recently high interest rates and inflation, a higher proportion of new and existing borrowers have struggled financially and may have experienced an event that will affect their credit score.

With the large banks still only focusing on prime deals at lower loan to values (LTVs), this opens up the specialist lending market to achieve larger volumes.

Kudos to those specialist lenders that have had to sit back slightly and tread water until the market (hopefully) is returning from famine to feast. The opportunity is there for all to see for specialist lenders moving forward.

But what about future book performance? There is clearly more risk appetite, which is obvious from the loosening of credit criteria, increased loan-to-income (LTI) ratios and mortgages available up to 100% again, for example.

In a decreasing interest rate environment and with household affordability hopefully improving over time, lending to a borrower today who meets criteria even with a “blip” in the past should, in the main, continue to be able afford the loan if personal circumstances don’t change moving forward.

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Arrears increase on the cards

But such enhancements to policies to achieve a larger market share will increase arrears whichever way you look at it. Add to this the requirements of Consumer Duty and arrears will become more labour-intensive than ever if servicing software isn’t able to deal with “low touch” cases automatically, thus allowing cases that require true manual assistance to be dealt with individually to the customer’s needs.

Automation across a whole servicing operation is ideal, with operational efficiencies in terms of headcount reduction meaning re-deployment to more strategic areas such as arrears and borrower retention rather than redundancy.

Wholesale funding markets are ‘buoyant’

From a funding perspective, wholesale markets are buoyant. There have been some notable trades over the past few months, including Phoebus clients such as Keystone Property Finance, Lendco and Equifinance.

I attended the ABS (asset-backed securities) conference in Barcelona in June, and there were a wealth of funders looking to both enter and expand in the markets as asset performance is pretty good.

This will only increase volumes and see more new entrants to the market. At the moment, there is particular interest in second charges and bridging, although buy to let (BTL) still remains relatively buoyant also. The Chancellor’s first budget could have an effect on this, as we know.

There hasn’t been a better time for specialist lenders to take hold of the market in many years. As well as the usual focus on originations, it’s imperative to ensure the servicing foundations are in place in case of any reversal in the economic climate. Replacing servicing platforms is no longer the cost, risk or labour intensiveness it once was, and so the time is right to consider whether existing servicing platforms are fit for purpose moving forward.