BSLS2022: High street banks eye specialist lending sector

BSLS2022: High street banks eye specialist lending sector

Speaking at the British Specialist Lending Senate, Damian Thompson, group managing director for retail finance at Aldermore, said that whilst high street banks had been “skeptical” of the market at first, they now saw opportunities and strong returns.

“They are coming. They will be on our doorsteps I suspect by the end of the year and that will be a challenge for us because you will see the occurrence of current account funding in our industry,” he said.

According to collated figures from specialist lenders and high street banks, between 2015 and 2021 the compound annual growth rate for specialist lenders was 13 per cent, compared to 1.5 per cent for high street banks.

Thompson said specialist lenders have better returns on equity than high street lenders and have been “key players” following the 2008 financial crisis.

He said during the crisis, specialist lenders were able to create “really strong savings products” which helped fuel growth.

He added that reasons for specialist lenders’ success included high level of insight, no legacy system and demand for specialist expertise.

“We were really focused as an industry and as a group of lenders. The high street suffered from an identity crisis, they wanted to do everything. We were very clear and very focused on what we wanted to do,” Thompson said.

He said specialist lending market had “proven that we are not a short-term fix” and indicated there was “longevity” in the market.

“We don’t lend money. We create dreams and realities for families that don’t believe it’s possible for them and unlocking that opportunity is really important,” he said.

 

Key challenges are consumer duty, customer retention and changing work habits

The FCA is currently consulting on consumer duty with the aim to set clearer and higher expectations for firms’ standards of care towards consumers.

Thompson said  this would be the “paradigm shift” in his lifetime, adding that brokers and lenders would have to rethink how they sell and create products.

Thompson added that one of the “biggest challenges” for specialist lenders was customer retention, adding that previous models around this had to change.

“Our customers come to us, and they get clean very quickly. They start making the payments, they start understanding what they have to do,” he said.

He continued that it was vital to listen to the customer, brokers and colleagues which serve them.

“If the industry continues to do that, and works with brokers, it’s going to make a real big difference, particularly in this economic environment.”

Thompson pointed to inflation, ongoing fallout from the Ukraine crisis and rising energy costs as causes for concern and said if it was a harsh winter these problems could be amplified.

He added that changing work habits with the “great resignation” and remote working also raised questions for lenders.

Thompson explained that a lot of people had decided to retire or resign from their roles post-pandemic.

He said some of those people may come back but they would “need specialist lending services” as their new role may not be aligned to their original career.

Thompson added: “Don’t underestimate this [remote working] as lenders, how our affordability models are going to work for customers who are working two days a week, three days a week from home what are we going to do own utility bills, what are your affordability changes is going to mean for them.”

The British Specialist Lending Senate 2022 in pictures

The British Specialist Lending Senate 2022 in pictures

Legal and General Mortgage Club adds Lendco to panel

Legal and General Mortgage Club adds Lendco to panel

 

Launched in 2018, Lendco is an intermediary-only specialist mortgage lender that provides non-regulated buy-to-let. It has completed nearly £1bn in total loan originations to date.

The maximum loan size for 75 per cent loan to value (LTV) products is £2m, and the maximum loan size per asset is £4m, and £10m per borrower.

Lendco’s mortgage for houses in multiple occupancy (HMO) allow up to eight letting rooms and consider multi-unit leaseholds as well as local authority or housing association tenancies. If a landlord’s rental income doesn’t meet the affordability requirements, surplus earned income can also be used to cover any rental shortfall.

The lender also offers portfolio mortgages, and accepts applications from ex-pats and foreign nationals, including registered borrowers in the Channel Islands, the Isle of Man and Gibraltar.

Danny Belton (pictured), head of lender relationships at L&G Mortgage Club said: “We are pleased to be offering this buy-to-let specialist solution to the broker network.

“With landlords buying more homes than they are selling for the first time since 2016, it is imperative that the market offers landlords competitive and flexible solutions. This range allows brokers to support landlords with complex borrowing requirements, at a time where finances may seem stretched and house prices are surging.

“I have every confidence that this will be a welcomed addition by our adviser community, who can now help their customers benefit from manually underwritten transactions by Lendco’s credit team.”

Simon Knight, managing director at Lendco, said: “Joining Legal and General Mortgage Club is the next logical step in our growth plans. It allows Lendco to upscale its operations by adding a household name to our distribution network, without impacting relationships with our select panel of brokers or compromising on the service we offer them.”

Vida ups both max LTV for debt consolidation and loan size

Vida ups both max LTV for debt consolidation and loan size

The maximum LTV now stands at 85 per cent LTV where cases involve debt consolidation, and the maximum loan size has been increased to £2m up to 75 per cent LTV.

The lender has removed its £180 assessment fee from all residential products.

In its fee-saver range the lender will offer free valuation for properties up to £1m an also give £500 contribution to legal fees.

Vida has also changed criteria around repossessions from 10 years to six years.

Richard Tugwell (pictured), director of mortgage distribution at Vida, said the changes demonstrated its commitment to the specialist sector.

He said: “With the rising cost of living and increasing interest rates, specialist lending is going to become increasingly important.

“The product and criteria changes take account of the fast-moving pace of the mortgage sector, and we are confident that these will provide great solutions to borrowers who are cut out of traditional mainstream lending.”

Habito and Perenna say current affordability stress test and LTI limit ‘not fit for purpose’

Habito and Perenna say current affordability stress test and LTI limit ‘not fit for purpose’

 

The Bank of England launched a consultation on withdrawing the affordability stress test earlier this year, which states that lenders should ensure borrowers can afford their mortgage if it is three per cent above their reversionary rate.

It said that it would keep the LTI limit, which outlines how much a borrower can borrow relative to income. It typically stands at 4.5 per cent, though lenders can extend this to 15 per cent with new mortgage lending.

The measures were introduced in 2014 by the Bank of England’s Financial Policy Committee (FPC) to strengthen mortgage underwriting standards and guard against increased household debt.

The firms said that current measures were “not fit for purpose when viewed against customer needs”.

They explained that a review of the loan to income (LTI) flow ratio would give specialist lenders opportunities to develop products for underserved markets for those who may need high LTV and LTI products, such as first-time buyers and later life borrowers.

 

Proposed changes

 

The companies have put forward two recommendations. This includes implementing the FPC’s proposal to remove the three per cent stress test, and review the LTI ratio exemption to apply to lenders who originate at 2.5 per cent of annual gross mortgage lending

The other is to eliminate the LTI ratio completely but keep the three per cent affordability stress test for loans with a fixed rate term of five years or less.

The companies said that either action would improve competitiveness in the mortgage market, even the playing field for specialist lenders and high street lenders and improve customer choice.

Alan Fitzpatrick (pictured), vice president of lending operations at Habito, said that house prices had “increased substantially” and many prospective homeowners had not been able to keep pace as the “lending landscape hasn’t moved far enough forwards”.

He pointed to research done by the firm, which showed that 54 per cent of UK homeowners had been limited by what they could borrow for a mortgage, even if they could afford to pay more.

“Our affordability recommendations come at a time when interest rates are rising, the cost of living is top of mind and we simply need better and more sophisticated ways to help people finance their homes,” he said.

Arjan Verbeek, chief executive of Perenna, said: “We are supportive of the FPC’s focus on managing excessive leverage and their own assessment demonstrates the affordability measure alone can contribute to it.

“If we want to address today and tomorrow’s challenges with the right level of precision, we believe the LTI flow ratio needs significant amendment or even withdrawal. By doing so, the financial services sector can introduce much needed product innovation and competition.”

We don’t want to be so specialist there are gaps in our products – Hodge’s Kevin Beevers

We don’t want to be so specialist there are gaps in our products – Hodge’s Kevin Beevers

 

Speaking to Specialist Lending Solutions, Kevin Beevers (pictured), managing director of commercial lending at Hodge, said the bank had historically targeted a certain type of borrower. However, the impact of Covid on the commercial property market and a realisation of the growing appetite for mixed use and residential assets has caused the lender to rethink its target market.

Now, as well as offering commercial loans against properties like office blocks, industrial estates and retail parks, Hodge will lend against student and retirement accommodation.

Alongside its commercial offering where it issues unregulated loans, the bank also has a heavy footprint in the later life and holiday let loans markets.

It hopes that allowing commercial borrowers to lend against assets with a residential aspect will enable clients to make use of the bank’s different divisions, for example, those who want to retain residential assets after completion and transition to BTL.

He said: “We don’t want to be so specialist that we leave huge gaps between our various products. We want to be specialist with products to suit everyone on the real estate spectrum.

“We [used to] say we were a specialist lender, but what we were was a specialist residential property lender. Now we’re a specialist property lender because we’ll look at commercial property both as an investment play and development play.”

Over the last three or so years, Hodge has worked to reposition itself in the later life lending space through its retirement interest-only products and is now going deeper into the commercial arena.

“Whether you’re the smallest or most simplistic case on one end, right up to someone who’s borrowing £10m for a development, Hodge has the specialist niches for those along the spectrum,” Beevers said.

 

The feel of a private bank

Beevers said Hodge’s aim was not to dramatically increase its market share or to dominate the UK market, but to better serve its experienced and “serially active” commercial clients.

In terms of how it will stand up against competitors old and new, Beevers said as the bank already operated in the commercial market for more than two decades, so Hodge was “certainly not starting from scratch”. He added: “We’ve got a good positive base.”

He said the bank had an existing client base and knowledge of the market which it could build on.

Beevers said: “It comes down to service, we are specialist in what we do so we are knowledgeable and accessible.

“We’re not a large bank compared to others in the UK, but that has a lot of benefits. We have a short line of communication between myself, credit function and people in the field. It’s very easy to get decisions and issues resolved, which is what our entrepreneurial clients really like.”

He said clients who operated in the space often had significant capital and extensive experience in the property market, so preferred to work with a bank where they felt they were in contact with decision makers.

Beevers said clients did not “want to feel like a small unimportant cog in a big organisation’s wheel”. He added that from experience, clients “like the feel of dealing with us.”

“We think we can grow our business profitably, safely and attractively within that market,” he added.

Beevers said the response to the bank’s launch of its investment product in March, followed by the widening of its commercial criteria in April had been met with positive feedback.

He also hinted at further “innovative” products coming down the line.

Beevers said this was indicative of “where we see a real opportunity to help the right sorts of experienced, active clients”.

 

A comprehensive approach

Beevers said Hodge would not be “prescriptive” on certain asset classes and was prepared to look at cases on their merits.

He said this was because some assets did not initially seem to be lucrative or attractive, but factors such as location and the client’s experience could overcome this.

Beevers said Hodge remained “open minded and will consider most things” and rather than give prospective borrowers a straight “no”, would aim to explain why a case does not work.

HTB appoints duo to intermediary distribution and new business head

HTB appoints duo to intermediary distribution and new business head

Both will report to Louisa Sedgwick (pictured), who is HTB’s managing director for specialist mortgages. She joined the firm in October last year and was appointed to the new role in January.

Wright has worked at HTB since 2021 and was most recently its head of propositions for its specialist mortgages division.

She joined the firm from Vida Homeloans, where she worked for around five years in various roles including head of field sales and corporate sales manager. Before that she was national account manager at OneSavings Bank for around two years.

In her role, she will help broaden the bank’s distribution footprint and develop further relationships with larger distributors in the specialist finance space.

Glasgow joins from Glenhawk where she was national distribution manager. Prior to that she worked at HTB in various roles including business development director and business development manager (BDM).

Before that she worked at Castle Trust for around three years as a BDM and has also worked at Barclays for around eight years in various roles.

In her role, she will support existing and new brokers within its specialist lending arm, which covers buy to let, semi commercial and bridging finance.

Sedgwick said: “I am absolutely delighted to announce these new appointments. Sally and Andrea have excellent track records and I’m confident they will flourish in their new roles, galvanising the teams to meet the bank’s ambitious targets.

“HTB’s Specialist Mortgages division is undergoing significant growth and looks set to maintain and exceed its current trajectory in lending over the coming months. These appointments will support our growth plans for 2022 and beyond.”

Fiduciam hits £12m record lending in Irish markets

Fiduciam hits £12m record lending in Irish markets

 

The loans, which were all completed in April, marked record lending activity for the firm. 

The total facilities amounted to £2.7m in Northern Ireland and €10.6m (£9m) across the Republic of Ireland. 

In the Republic of Ireland, these comprised of a €2.1m (£1.7m) bridging facility secured against two period dwellings in a prime residential location in Cork and a €500,000 (£42,6395) loan secured against two residential properties in County Meath for refurbishment. 

In Northern Ireland, a £1.13m facility was provided to an existing customer against three residential properties in central Belfast. This allowed them to bolster their investment portfolio by acquiring five additional properties. 

Additionally, the lender issued a £300,000 development loan to fund the construction of two new-build houses. 

There was also a cross-border transaction where three loans were issued to fund the acquisition of a development site and refinance an existing asset. 

Ken Duffy, country manager for Ireland, said: “Our strong performance in Ireland is testament to our willingness to go the extra mile for our clients.  

“We hope to continue to grow our Irish loan book throughout the remainder of 2022 by maintaining strong relationships with our repeat borrowers and expanding our footprint in the Irish market.” 

West One Loans cuts rates on BTL lifetime tracker range

West One Loans cuts rates on BTL lifetime tracker range

The largest reduction is in its Lifetime Tracker Stand W1 product range, which has been cut by 111 basis points to 2.99 per cent.

It can be used for houses, flats and new-build properties. It tracks the base rate and has a margins of 2.24 per cent.

Rates in its Lifetime Tracker Specialist W1 product range have fallen by 96 basis points, and rates start from 3.24 per cent.

The lender has also added an 80 per cent loan to value (LTV) product to this range

The specialist range caters to complex transactions, such as houses in multiple occupation (HMO) and multi-unit blocks (MUB).

Andrew Ferguson (pictured), managing director of West One Loan’s buy-to-let division, said that the new reduced rates along with its flexible underwriting and quick decision making would “provide a compelling proposition for brokers and their clients”.

He added: “While price is a factor, the depth of the West One proposition combined with speed, certainty and expertise is why brokers come to us. We underwrite manually so that we can say yes to more deals and we are trusted by intermediaries and property professionals to get the deal done.

“Those investing in rental properties have been increasingly looking for specialist buy-to-let products, and as we specialise in HMOs and MUBs we are well placed to offer finance to both new, and experienced landlords.”

One to one with Russell Anderson, customer retention and partnerships director at Paragon

One to one with Russell Anderson, customer retention and partnerships director at Paragon

Anderson, formerly head of Bank of Ireland’s head of sales and distribution, joined Paragon earlier this year in the newly created role of customer retention and partnerships director, where he works on improving the lender’s proposition and existing customer relationships.

He told Mortgage Solutions what his plans are for Paragon, where the key challenges are and opportunities are, and how he wants to strengthen its relationships with brokers.

Anna Sagar, reporter at Mortgage Solutions (AS): Having joined the lender recently, can you tell us about what attracted you to Paragon initially?

Russell Anderson, customer retention and partnerships director at Paragon (RA): I have been working in banking for 20 years and within the mortgages sector for the last 15. Within that time, I have developed a passion for mortgages and enjoy helping distribution partners, brokers, and customers with complex and or specialist mortgages.

Paragon is a leading specialist lender with an excellent brand in the industry so it was the correct fit to further my career in the specialist sector.

AS: Tell us about what the newly-created role of customer retention and partnerships director entail?

RA: The key aspect of my role is to enhance the service offering to our existing brokers and customers when they are looking to switch to a new rate and or borrow some additional funds.

Central to this is strengthening relationships with key distribution partners to support our retention growth plans.

AS: What are your near-term and long-term plans for Paragon?

RA: To lead and grow the successful existing customer team by bringing fresh and innovative ideas. I also plan to exceed our retention growth plan and support our brokers and customers through the existing customer journey, focusing on a simplified approach.

AS: Where are the biggest opportunities and challenges as specialist, complex buy-to-let lender and how will Paragon differentiate itself from other lenders?

RA: The existing customer journey for both product switch and further lending is a big opportunity for Paragon. This year we have made a number of changes in these areas that help to differentiate Paragon from other lenders while delivering high levels of service. In doing this we will enhance our new business offering and support the growth of our mortgage proposition.

An example of this was Paragon being amongst the first specialist lenders, if not the first, to extend the window in which borrowers with buy-to-let mortgages reaching maturity can switch products. With recent increases to the base rate of interest, and further rises anticipated, we’re providing the opportunity for borrowers to switch to a new product sooner rather than later, locking in a deal.

Looking at the challenges faced by Paragon, I’d say one of the most prevailing for us, and I imagine many companies, is the regulatory environment for landlords. The proposed changes to EPC ratings in the private rented sector present major challenges, if implemented, and landlords and lenders will need to work closely together to deliver.

AS: What are the biggest opportunities and challenges around customer retention? What will Paragon’s strategy be around this?

RA: Central to Paragon’s strategy is a simplified process to make things quicker and easier for both brokers and borrowers.

An example of this is the work we’ve done to streamline the further advance process. This involves assessing the information we already hold on a landlord customer and assigning them a tier based on this. Depending on a customer’s tier, we have the ability to then pre-validate them and offer a further advance without the need to go through the full application, removing the need for things like full physical valuations.

Another key pillar of our strategy is to strengthen relationships with brokers, who are a vital component of our customer retention work and wider growth plans. Putting our money where our mouth is, we recently announced that brokers introducing product switches to our other buy-to-let mortgages will receive an increased procuration fee.