Speaking to Specialist Lending Solutions around a year after securing its banking licence, Anth Mooney (pictured), Vida Homeloans’ CEO, said: “The first year for us as a bank was all about proving that our model works at scale. It’s the first time, really, we’ve been able to press the accelerator and properly understand what the origination machine is capable of, and the results so far have been incredibly positive,” he said.
Mooney noted that at the half-year point, it had more than doubled its lending volumes, and that was by “maintaining the same discipline around risk and pricing of our products and trying to focus on keeping broker service quality up”.
He said it should finish the year with applications of around £2.7bn, which is more than double last year’s figure, and it had a “really strong pipeline and run rate”, so that should put it on a path to deliver around £1.6bn in completions next year. The latter is around four times its completions in 2024 as a non-bank.
“It gives us the confidence to grow the business over the next couple of years. We’d expect to grow the book past the £5bn mark, I would say over the next 2-3 years, probably from the book that we have today, which is about £2.3bn,” Mooney noted.
He said on the savings side, it had a full range of products, including ISAs, non-ISAs, fixed rates, bonds and variable deals, and it has since passed £2.3bn in deposits, which is past its target.
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“I think the retail deposit market is incredibly competitive at the moment. Pricing, in terms of spreads, is probably at the highest level that we’ve seen in the last decade, so we’re pleased to have managed to get the balances under our belt… in that kind of market,” Mooney said.
In the last 12 months, Vida Homeloans has shifted its mix of lending to 50:50 between residential and buy-to-let (BTL) business. The mix was previously around 75% BTL, with the remainder being residential.
“The specialist market is growing in a way that the wider mortgage market isn’t. We think it’s difficult to put a specific number on it, but we think the total market is about £21bn, and by all measures, it’s been growing around 10% or 11% a year for the past five years, and we expect that to continue.
“We’ll just concentrate on being the best specialist mortgage lender that we can be and that will continue to be true. That focus on broker service and the way that we work, not just with the clubs and networks, but with individual firms, we’ve spent a lot of time working on that over the last 12-18 months,” he said.
Mooney said Vida Homeloans currently had 230 people in the business, but didn’t expect that figure to grow much further as “we have all of the capacity that we need to grow already going through the banking licence approval process”.
Vida’s banking licence boosts intermediary relationships
The banking licence has also allowed it to build on its relationships with key intermediary partners, with volumes from some of these partners doubling or trebling over the course of the year, as they can lend more.
“I think with brokers, they tend to use what is familiar to them and, if you’re writing £200m-300m of lending, the typical broker is going to be sending you one case a year.
“It doesn’t really give you an opportunity to kind of build that habit and familiarity, so you know that certainly plays in. We’ve invested quite a lot… in technology, and we’ve centralised all of our intermediary servicing, which I think helped quite a bit,” he said.
Vida Homeloans transitioned from a field-based business development manager (BDM) model to a centralised one in 2022.
“Once intermediaries [got] used to the fact that they can get all of the information immediately by dealing with a centralised service, that started to bed in really well for us. Our broker NPS scores are way stronger than they were a couple of years ago, and very strong compared to peers,” he noted.
Mooney added that Vida Homeloans was “not the business that we were five years ago” as it was “operating at greater scale” and its service is “more consistent”.
Vida premier club hits 12 firms and set to double
Mooney said Vida Homeloans has a premier club within its overall service proposition and is “focused on those firms that bring us the best mix and best quality of business”.
“We’ve got direct relationships now with each of those firms that we didn’t have before, that they’re very data-driven. We share a lot of information about the quality of the lending and the underlying metrics that we see that [are] useful to our broker partners, so they get a better feel for the type of business that we want and we get the opportunity to see more of it from them,” he said.
The premier club has 12 firms and this is expected to grow to around 30 in the short term.
“We can see every time that we add a firm into that model, we start to see real traction in terms of engagement with our proposition, in terms of the volume that we generate,” he said.
Banks already competing in specialist lending sector
Mooney said a “big shift” in the market was big banks entering the market, adding that it was “banks that we are competing with”.
“It’s the banks really that now dominate the specialist market, and that just wasn’t true five years ago. I think that will continue to be the case. I think we’ve seen with the Barclays-Kensington transaction that the larger banks are kind of looking into this space. I think we’ll see a bit more of that and that won’t be the last of those transaction[s] by any means,” he said.
Mooney said non-bank lenders that were mainly securitisation-funded could find it “difficult to build and scale a business”, as the funding was “less predictable and certain”.
“We’ve seen some of the smaller players specialise and operate at the margins, but I can’t see many of the non-bank specialist lenders scaling beyond that £3bn-4bn level.
“I think a lot of the non-bank specialist lenders are likely to, over time, disappear through consolidation. I think either banks will buy them, or they’ll just be competed out of existence,” he noted
Mooney said those that will survive are “going to have to diversify into more complex products to compete in the mortgage space”.
Most specialist lending growth in residential market
Mooney said the majority of specialist lending market growth in the past five years had been in the residential space.
“I think partly that’s because… the heavy automation of decisioning that we’ve seen at the big banks over the last decade has just diminished, or in some cases, removed their ability to deal with complexity, and that’s just at a time when customers are becoming more complex,” he said.
This would be customers who have different earning patterns, such as being self-employed, working part-time, having different income streams, not having lived in the UK long or being foreign nationals.
Mooney said there is “unmet demand” in the more specialist residential market, which is why it had focused more on residential business, adding that there was “real opportunity” with first-time buyers.
He pointed to its 3% deposit product and the wider number of deals above 90% loan to value (LTV).
“We could do a lot more business in that space if we didn’t have the restrictions placed upon us by the regulators, but we’ll work with that,” he said.
Mooney said that when the regulator eased the rules around loan-to-income (LTI) limits, it increased the LTI limit to seven times for customers.
“We’ve taken the opportunities as they’ve been presented to us, and hopefully we’ll see a bit more of that from regulators and government just trying to offer further support, particularly the first-time buyers,” he said.
Mooney added that there were a lot of customers looking to downsize, looking to release equity from their property and, in some cases, looking to remortgage later in life.
“The options for that segment remain surprisingly limited, so that’s definitely an area of growth, and we’ve seen a lot of demand in that space, so we’ll continue to focus on that side,” he said.
BTL market ‘resilient’ and becoming more professional
On the BTL side, he said it had added holiday let, consumer BTL and Let to Move to its proposition over the past year.
“The BTL market itself, although it’s been incredibly resilient over the past few years, we don’t see a huge amount of upside growth potential in that market, given some of the headwinds.
“What we have seen is, and I think this has worked well for the specialist sector, we’ve seen a lot of landlords just repositioning and restructuring their portfolios because the economics of a traditional kind of two-up, two-down-type BTL are getting further squeezed,” he noted.
Mooney said complex property types, such as multi-unit blocks (MUBs) or those above commercial properties, are seeing more demand.
Mooney noted that with the “continued professionalisation of the buy-to-let market”, limited company business has become “far more mainstream” than five years ago.
He noted that “any BTL lender who has aspirations to write any sort of volume” in the BTL market “needs to cater for that segment”.
“It’s not that we’ve seen the death of the amateur landlord, or landlords with two or three properties, I think that’s still an important part of the market, but that’s not going to go away. I think, over time, that professionalisation, that search for yield, it pushes landlords into that limited company space – that’s a trend… that is set to continue,” Mooney said.
