Speaking on a panel at the British Specialist Lending Senate, Nicola Goldie (pictured, left), Aldermore’s head of strategic partnerships and growth, said: “You can see the market evolving in terms of mainstream lenders pushing down into the specialist space. We’ve seen consolidation in terms of larger lenders buying specialist lenders and buying that distribution. Equally, some of the larger lenders have been moving up that risk curve as well.
“That’s because customers and their needs are changing. Their requirements, their complexities and their credit profiles are changing, so the high street have had to make that move.”
She said there was “a space for that”, but from a “specialist lender’s point of view, it’s focusing on what’s needed in there”.
“So, when you take a high street lender, they don’t have that same ability with human underwriting, they don’t have that ability to really consider a customer at a holistic level rather than through the vanilla lending process that a normal high street lender would do.
“We focus really hard on how we take that holistic look at the customer. How do we do the human underwriting, how do we make that process easier and slicker? But also looking at what are the different niche areas that we know that high street might not necessarily be able to stray into?” Goldie explained.
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Multi-property buy to let (BTL) was cited as an area that high street lenders could struggle to enter.
She said there was a “blurring of those lines”, but specialist lenders are “refocusing and getting that feedback on where the customer need is and evolving the solutions for that.”
Nick Parker (pictured, centre), sales and distribution director at Together, said that while mainstream lenders “probably do want to go up the risk curve, they’re looking for the perfectly imperfect”.
“They’re not looking for the same kind of business that we in a specialist lending world capable of actually servicing,” he said.
Parker added that data was “really important to mainstream lenders” and “if they’re going to make a decision about anything, [they are going to look at] what impact does it have on KPIs such as average scorecard results and consumer indebted index?”.
“They’re not looking to move the dial on those on those numbers, so anything they do is about taking a single piece of data and going: ‘Okay, we can slightly change what we do here to move up that risk curve’.
“For specialist lenders, the story matters and we are there to support not just the perfectly imperfect, we’re there to support the imperfectly imperfect as well. That is what specialist lenders are all about. It’s the manual ability to understand the holistic approach. It’s not just about pigeonholing people and profiling people. Everyone is treated as an individual, and it’s key for specialist market to get that message out,” he explained.
Rob Barnard (pictured, right), intermediary relationship director at Pepper Money, added that the “mainstream lenders have played in specialist lending sector forever”.
“I’ve sat around too many tables of start-up lenders, and the biggest threat to any of us at any of these times is: but what happens if one of the high street lenders wants to specialist lending?
“If they wanted to do it, they could, but I guarantee you they’ll be sat around a board room table, and their risk team would go: ‘But they’re talking about county court judgments (CCJs)’,” he added.
Barnard noted that specialist lenders have to “differentiate”, and what they offered was “surety, certainty and reliability”.
“We do not change our appetite depending on the volume we get through the door. I guarantee all those lenders that are taking a little bit more at the moment, when the volume starts to grow and the service starts to creak, they’ll get the screwdriver in the back of the credit score machine and tune it up.
“What you see with us, that’s what you get, and how we back that up is access to underwriters,” he noted.
Specialist lending customers should return to high street with lender’s ‘blessing’
Barnard said specialist lending customers were “not with us [specialist lenders] forever”.
“They’re not going to sit on our balance sheet for 25 years. It might take a couple of cycles to get them ready to go, but then they should go with that blessing,” he added.
Parker added that customer needs, especially those of specialist lending customers, change, and there are “multiple touchpoints with a specialist customer that don’t exist within a straightforward, mainstream fixed rate sub-70% loan-to-value customer that just follows a five-year cycle”.
He said: “It’s not just about the adverse credit; it can be lots of different complex layers that mean that they sit within that specialist lending world. There may be two or three cycles before they move on from it.
“It might be that they actually have to stay in that in that world because property type doesn’t fit, and I think as we go towards 2030, and the EPC rules and expectations are brought in, I think that’s going to grow in terms of the people that are going to sit within our wheelhouse.”
Need to ‘demystify’ specialist lending with brokers
Goldie noted that there was a “need to demystify the specialist landscape from a broker point of view”.
“We will probably ask more questions, but of course, we are going to ask more questions if the customer is a little bit more complex and that’s not a bad thing.
“Actually, understanding the customer story means you’re going to be able to help more customers. It’s removing the myths that sit around specialist lending to make it more attractive to brokers, to actually think: ‘I want to know more about that’. I want to understand more about each of our propositions, and then I will be able to help more customers,” she said.
Goldie said this involved “bringing [specialist lending] to life” and examining “what are the opportunities to help that one more customer and help build your business?”.
“Help you communicate with your customers through case studies and through examples of where we have been able to help a customer that traditionally, you might have had sat in front of you and said no. Broker should never be saying no, there’s however many lenders out there that could help that customer,” she noted.
Barnard said one of the “myths” that needed to be dispelled was the “fact that we are a little bit more expensive than the high street”.
“We are, there’s no getting away from that, but I suppose that the counterargument is it’s only expensive if you can get it cheaper elsewhere.
“I think it comes back to the advice. To me, it shouldn’t always be about price, but it should 100% always be about advice. There are solutions to be had. I would say brokers now should be saying no to next to nothing. There’s a home for everything, whether it’s across seconds, whether it’s bridging, later life, specialist, residential or buy to let. There’s a solution out there, it’s picking the broker that’s educated,” he added.
