Q&A with Kensington’s Craig McKinlay: ‘Buy to let is not as complex as it appears’
MS: There is fierce competition in mortgage lending right now. Mortgage lenders are battling to hit their lending targets with some of the best mortgage deals ever seen. This is great for consumers and brokers – but what is Kensington doing on the product or service side to hit its lending targets? How can lenders flex to stand out from the crowd at a time like this?
CM: Last year was our most successful year since the credit crunch and we are keen to continue our growth. We’ve been expanding into new areas while also doing what we do best – taking an innovative approach to the niche parts of the market that we work in. For example, we have launched new offerings for high earners, young professionals and those in later life, and also expanded our buy to let offering into limited companies.
What we are most proud of, however, is achieving record-breaking sales while still maintaining quick turnarounds in operations and reducing our time to offer.
MS: Kensington was the first adverse credit lender, and one of the few specialist mortgage brands that survived the credit crunch, so what does that give you as a lender?
CM: Our long-standing position gives us the experience, knowledge and, perhaps most importantly, the data on which we base our lending decisions. We are very proud of the fact that we see people as more than just a number. We combine our data with human empathy and understanding in order to help the widest possible range of people at every stage of their life journey.
MS: In buy to let, as property investors professionalise, is the broker market adjusting quickly enough to reflect that? How do you expect the industry to change to accommodate portfolio lending on a mass scale? More premier servicing for landlords? Tailormade rates depending on lender risk appetite?
CM: There’s certainly been a shift towards specialist buy to let brokers and lenders, as there’s now much more demand in this area from limited companies. Smaller brokers shouldn’t miss out on this opportunity, however – buy to let is not as complex as it first appears, and brokers can add significant value to the large number of non-portfolio landlords. There may not be quite as many as there were in the past, but they are still in need of good advice.
On the portfolio side, though, we’ve tried to simplify the process when submitting applications. For example, we’ve removed the business case requirement and no underwriting is needed when examining the background portfolio if the borrower is setting up a limited company.
MS: How does it help you as a lender to allow mortgage advisers to talk to your underwriters? Brokers appreciate the access but why does that work for you as a provider? Plenty of other lenders don’t offer it.
CM: Allowing brokers and advisers to talk to our underwriters is a key part of the service we offer, as we want brokers to feel confident enough in our lending criteria to place their cases with us. Additionally, this access means that brokers can add clarity to cases and provide us with any additional information that we need to proceed. Alternatively, in the unlikely event that a borrower is not the right match for us, it’s really important that we can explain why we have made that decision so that the broker can hopefully place the case elsewhere.
MS: Self-employed borrowers are a growing customer segment – Kensington is willing to lend on one year’s accounts. Why? Will the era of open banking make it possible for lenders to lend on just three months’ accounts?
CM: Self-employed borrowers are an under-served segment of the market and they represent a high-quality lending opportunity for lenders and brokers alike. These borrowers have always been part of our core customer base across both our residential and buy to let ranges. Taking one year’s worth of SA302 accounts allows us to ensure we are lending appropriately and sustainably.
Open Banking and other fintech innovations offer some great opportunities, and we’re already looking at new ways of gathering information to underwrite cases. We’re currently in discussions with some leading industry players to assess how we can make the most of these new developments.
MS: Contractor mortgages. How are these borrowers unique and how do your products reflect that? You offer a contractor adverse credit product, so do many contractors struggle with liquidity or adverse credit?
CM: Contractors are a very diverse group of customers and they vary greatly in their circumstances. For example, we can be flexible for a doctor on a locum contract, even if they have only spent a short amount of time in their new role. However, someone who is moving from one industry to another, or expecting a pay rise, would need to be in the position for a longer period. We see no difference in adverse credit demand from contractors compared to our pool of borrowers.
Kensington adds head of national accounts
Hayter (pictured) joins from Principality Building Society and will be responsible for managing key intermediary accounts.
Prior to joining Kensington, she spent three years as national account manager at Principality, growing the intermediary proposition and business development team.
Before this, Hayter led the business development team for Countrywide. She also includes time at Chelsea Building Society within her 15 years’ financial services experience.
Kensington Mortgages sales and distribution director Steve Griffiths said: “Frances joins us with a great amount of experience and we’re delighted to welcome her to the team.
“This is an exciting time for Kensington Mortgages, as we continue to meet the ambitious goals we set for ourselves following our full brand refresh at the end of last year.”
He added: “The knowledge, passion and professional relationships which Frances brings with her will be crucial in helping us in our long-term goals and we look forward to working closely with her.”
Kensington launches brand refresh and sees business up 60% – exclusive
The lender also broke through the £1bn lending barrier in the 12-month spell to the end of August and expects later-life lending to be a key growth market.
It said the growth and rebrand followed continued product and personnel investment throughout the year and that it was continuing to integrate more data to support its manual underwriting.
The rebrand also includes a website refresh following consultation with brokers, with key elements such as lending criteria and calculators more prominent and accessible.
Speaking at the launch, Kensington Mortgages CEO Mark Arnold (pictured) told Specialist Lending Solutions that the lender had focused on maintaining service quality for brokers.
“We’ve got the proposition right with the buy-to-let offer complementing the residential offering being particularly important,” he said.
“We want to make sure we can stand behind the brand and that we have a proposition that delivers and can work.”
Arnold added that the lender wanted to continue its approach to manual underwriting as it evolved its specialist offerings, but that it was keen to make better use of data in administration and background processes.
“Technology is changing the market and there are so many sources of data to help make decisions,” he continued.
“We get data to the point where the underwriter can make a decision. We use services that extract the data and for example use bots to do basic administration tasks.
“And we’re making a big investment of £5m in the next couple of years to continue that,” he added.
Specialist market growing 20-30%
Kensington said the rebrand is aimed at highlighting its philosophy to look beyond the surface to find the right solutions for borrowers while using ‘head and heart’ rather than computer alogrithms to make decisions.
New business director Craig McKinlay said after its 60% annual growth in the three months to September the lender was looking to continue growing at around 25% a year for the foreseeable future.
“The specialist sector is growing around 20-30% a year because so many people are falling out of the high street lenders approach,” McKinlay said.
“Most of what we do isn’t credit adversity, its complex incomes such as being self-employed with multiple incomes.”
He also acknowledged that competition was increasing in the specialist sector and that borrowers were less concerned with price.
“There’s been a lot of new entrants and although there are higher costs, its attractive because there are higher margins,” he said.
“For our part of the market its less about product rate and more about certainty and service – can you do it and how well?”
Shared ownership possibility
The relaunch of the buy-to-let offering earlier in the year has been a key source of growth for Kensington, with the focus on limited company lending seeing a steady stream of activity, McKinlay said.
While this is likely to be one area of growth despite the overall sluggish buy-to-let market, later-life lending is also seen as another big opportunity, as is first-time buyers and replacing Help to Buy.
“There’s a couple of interesting ideas from the private sector mooted,” McKinlay said.
“Shared ownership on any house could be interesting because shared ownership is very niche at the moment.
“We would be happy to lend on that,” he added.
Northview, Simplybiz, and Aldermore appoint senior roles – round-up
The Northview Group, whose brands include the Kensington, New Street, and Acenden, has appointed Mark Arnold to the role of the group’s chief executive officer.
Arnold will take on the role on 10 April 2018, and will replace Amany Attia, who announced her retirement in June 2017.
Previously, Arnold was executive in residence at private equity firm Centerbridge Partners, and had spent 18 years with GE Capital in a variety of senior management level roles.
Tim Breedon, executive chairman at the Northview Group, commented: “Mark’s broad experience will be key to supporting our strategy of continued mortgage lending growth, which through brands like Kensington Mortgages has been supporting underserved customers for over 23 years.
“We look forward to welcoming Mark on board in April.”
Arnold added: “Northview Group brands have built a great reputation in the specialist lending market over many years. The group has had a fantastic year and I am confident that my experience from around the globe will further support the ambitious growth plans that we have.”
Makayla Everitt (pictured) has been promoted to a newly created position of head of mortgages at Simplybiz.
Everitt joined Simplybiz in May 2012 as head of business development after a previous role at Natwest.
She is responsible for the growth and strategic direction of the business and will continue to report to the Martin Reynolds, chief executive officer of Simplybiz Mortgages.
Reynolds commented: “Makayala has been with the business for nearly six years and during this time she has been instrumental in the growth of its proposition.
“Her focus on enhancing our members’ business opportunities whilst keeping them and their clients protected with our compliance proposition has been well received.”
Aldermore has appointed Sue Hayes to the newly created position of group managing director, retail finance.
Hayes joined in June, and will now be responsible to managing the bank’s existing mortgages and savings businesses, as well as looking for expansion into new areas.
She was previously managing director of premier and community segments and savings products at Barclays. Prior to the Barclays role, Hayes worked at Santander, RBS, and Halifax Bank of Scotland, where she held various senior roles across retail and commercial banking.
Phillip Monks, chief executive officer of Aldermore, said: “Aldermore has established itself as a key supporter of professional landlords and homeowners that do not fit the cookie cutter approach of many providers, with our award-winning savings proposition offering competitive rates over the long term.
“Going forward, we aim to broaden our offering, further helping individuals to achieve their goals, and Sue’s experience and knowledge will play a key role in our future development.
“The business is well positioned in providing mortgages to customers who are overlooked by mainstream lenders, such as the self-employed, contractors or independent workers, who are an increasing part of the UK working population.”
Kensington Mortgages cuts rates until January
The lender’s Select range now starts from 2.49% at 75% loan-to-value (LTV) and 2.99% at 85% LTV, a 0.20% reduction to the two-year fixed rates.
The residential five-year fixed rate at 85% LTV has been cut by 0.40% to 3.79%, and its two-year fixed products have been cut by 0.30% to 2.64% (75% LTV) and 2.74% (80% LTV).
Buy-to-let loans have seen reductions of 0.20% across its five-year fixed range.
Kensington has also introduced changes on its residential large loans proposition, with rates now starting from 2.39% with zero completion fee on the one-year fixed option.
It has made cuts of at least 0.30% across its new build range, including 0.40% on its residential new build five-year fixed product.
Steve Griffiths (pictured), director of sales and distribution at The Northview Group, said the changes were going ahead regardless of the rate rise by the Bank of England.
“Whether our customers are self-employed, contractors, or have complex income streams, we are committed to offering a variety of competitive products to meet changing demands and needs of our clients, and we are confident that these reductions will be welcomed by brokers and customers alike,” he said.
Northview Group: Base rate to rise in 3 months’ time to 0.5%
In October, base rates were kept at the record low rate of 0.25%, with a 7-2 vote in favour of a hold, as in the previous month. Nevertheless, with UK CPI inflation rising by 0.1% in August 2017 to 2.7% (up from 2.6% in July) and twelve-month CPI inflation rising to 2.9%, speculation is growing on how soon an interest rate rise could happen. With inflation expected to reach above 3% in October, Carney has hinted at a rate rise happening sooner rather than later and has commented that rates are likely to increase further over the next two years than what some markets are currently predicting.
The Bank of England has also unanimously voted to keep the corporate and government bond purchases to their current level at £435bn, as part of its intention to meet the UK’s 2% inflation target. GDP rose by 0.3% in the second quarter of 2017, in line with the MPC’s August predictions, but perhaps more importantly unemployment has fallen yet further to 4.3% below BoE forecasts, the lowest level in over 40 years.
MPC members will likely continue to assess that if the economy remains generally consistent with the August Inflation Report, then monetary policy may potentially be tightened, which could mean a near-term rate rise, now forecasted by the market for the next MPC meeting scheduled in early November.
Evidence still suggests though, that the rate of growth could eventually slow. Last month, the Bank of England cut its growth forecast for the year from 1.9% to 1.7%. Whilst Carney’s comments about the impact of Brexit had sent the pound to a seven-year low in August, the pound gained back its loss after the August MPC meeting.
However, this month saw the Governor take a far more hawkish tone, hinting at near-term rate rises. When the markets closed, the pound had rallied, jumping to the highest level in more than a year as it leaped above the $1.36 mark and rose by 1.1% against the euro.
In light of these considerations and as two-year swap rates approach the 0.80% threshold on the afternoon following the MPC meeting, the markets have revised their estimates for a near-term rise sharply. Looking at data from the financial markets and the UK’s economic outlook, we expect the current low 0.25% base rate to rise in 3 months’ time to 0.5%. Over the course of the next two years, our predictions set the base rate at hitting 1% by 2020 (shown in the first row of the table below).
For three-month LIBOR, we again expect to see a rise to 0.5% in three months’ time, in line with Borrowing Base Rate forecasts.
Continued uncertainty around Brexit and ongoing global tensions do remain a weight on plans for a rate rise and could potentially limit any near-term changes. However, the Bank has certainly struck a more hawkish tone this month and the fallout could mean a rise in the base rate far sooner than many of us previously thought. Then the question is how long until this starts to drive mortgage rates higher.
Property sales bounce back in May – Land Registry
The increase in sales follows a fall in April which saw sales slump to their lowest level so far in 2017, at 22,546.
The figures revealed 481 were residential sales in for £1m and over, 304 of which were in the Capital.
The most expensive residential sale in May 2017 was a detached property in Kensington and Chelsea for £37m. The cheapest residential sale in May 2017 was of a terraced property in Wingate, County Durham for £10,250.
Kensington cuts rates on majority of mortgages
The lender’s rates will now start from 2.69% for loans under £500,000 and 2.34% for larger loans.
The rate changes also include reductions to new build mortgages with the two-year fixed (80% LTV) reduced from 3.59% to 3.04% (a reduction of 0.55%).
Steve Griffiths (pictured), sales and distribution director at Kensington parent company The Northview Group, said the reductions will allow brokers to choose a deal that offers “great value for money for a whole range of customers, from those with complex needs, the self-employed, to those seeking a large loan or wanting to buy a new property”.
New Street joins Brilliant panel
New Street, which is part of The Northview Group, joins its sister brand Kensington on the Brilliant panel. Kensington is part of Brilliant’s direct to lender mortgage club and its products are available through its packaged distribution channel.
The addition follows the news earlier this week that New Street and Kensington have joined the MCI Mortgage Club.
Steve Griffiths, director of sales and distribution at The Northview Group said: “With so many changes in both the dynamics of the housing market and the structure of the mortgage lending industry, it is important to work with businesses like Brilliant that offer specialist expertise, whilst at the same time giving brokers the freedom to choose distribution channels.”
He added: “The New Street range of buy-to-let and let-to-buy products, feature high LTVs and intelligent credit criteria, and with faster decisions should appeal to Brilliant Solutions brokers, especially coupled with new lower rates starting from 1.59%.”
Matthew Arena, managing director of Brilliant Solutions (pictured), added: “New Street is a lender at the forefront of innovation in the specialist market and we welcome the positive changes that they bring in this field.
We look forward to helping them deliver their innovations to the broker community and ultimately to the UK’s borrowers.”
Kensington and New Street join MCI Panel
The lenders, which are both part of The Northview Group, offer a range of residential and buy-to-products.
Phil Whitehouse, managing director of the MCI Mortgage Club said: “I am delighted to be working with Kensington and New Street to offer their range of residential and buy-to-let products to MCI’s growing broker membership.
“Kensington is a hugely respected brand within the market and has some very interesting criteria benefits in the self-employed and contractor sectors – where innovative, flexible products are in high demand. Its sensible approach to underwriting is also to be applauded, with policies such as ignoring mobile phone defaults.
“New Street’s range of buy-to-let and let-to-buy products are competitively priced, and will give our members even greater choice when placing cases at what is a somewhat challenging time for the buy-to-let market.”
Steve Griffiths, director of sales and distribution at The Northview Group, added: “MCI Mortgage Club is a new partner for The Northview Group and we are keen to develop this relationship with the Club and its members through both our Kensington and New Street ranges.
“Kensington can provide more opportunities for members, with a lending for real life approach and experienced underwriters that make decisions based on the specific, individual circumstances of each customer.
“New Street is a modern mortgage experience with faster decisions, high LTVs, intelligent credit criteria and rates from just 1.59%.”
MCI recently appointed a business development manager as it aims for significant growth in 2017.