This week, specialist lender Magellan Homeloans closed to new business, citing market competition, pressures of shrinking interest rates and increasing credit risk.
This follows Secure Trust Bank and the AA which both closed to new business since the start of the year.
So, Mortgage Solutions asked this week’s Marketwatch panel, how small lenders could guarantee success through the intermediary channel in such a competitive market.
Smaller lenders will survive through continued product innovation and tackling sectors of the market neglected by their larger peers.
Building societies have long led the way in carving a space for themselves through the provision of bespoke lending solutions and good customer service. The addition of reliable online resources and application platforms to these propositions makes it easier for societies to grow and enhance their reputation among intermediaries and customers.
The mortgage market has also seen a healthy number of new entrants over the past two-years or so who offer a range of solutions to cater for everything from limited company buy-to-let (BTL) lending and landlords looking to maximise leverage, to the self-employed with limited trading histories.
With so many lenders back in this field it does appear that most client requirements can be met in some shape or form.
So the success of any lender in this space will be influenced by the value of product offering and the service the lender offers brokers, and by extension their eventual customer, that will set them apart and secure their future.
There is a noticeable gap in the efficiency of larger mainstream lenders when compared to smaller lenders. Naturally there is a trade-off for having an application treated on its merits which takes time and manpower, but distribution channels often over complicate the process and add cost to the customer.
I believe a simplification of this and a removal of some of the barriers to use would increase lending volumes for all involved.
While the mortgage market is ultra competitive and margins are getting tighter and tighter, smaller lenders will survive by having niche criteria which the high street lenders choose not to use and they can still make money.
A classic example this week is lending to retired applicants and two of the bigger building societies will happily lend to you until you are 70 years old, but not if you are retired and in receipt of pension income.
For most clients the age of 70 is coming too soon and they want to borrow beyond that due to inheritance tax planning, the need to gift money to their children or merely not wanting to down size until mobility becomes an issue later in life.
So Santander will let you have a repayment mortgage to age 75 and Metro will lend to age 80 if your house is worth enough, to name just two high street lenders, but if you want real flexibility as to when your mortgage can end, you need to look at the smaller building societies.
They will never be top of the best buy tables but half of our time is spent finding someone prepared to lend as opposed to chasing the lowest rate.
This week we have recommended Newbury, Loughborough, Cumberland, Bath and Family Building Societies as their criteria worked for our clients. They offer a good blend of rate and fee where the risk is priced accordingly and it is criteria that will keep them profitable in these challenging times.
There is and always has been a real need for small lenders, even in our somewhat crowded marketplace.
While the big boys try to tempt borrowers with very competitive initial deals, they all seem to fish in the same pond, wanting clients that fit a strict criteria when it comes to income, property type, employment, age and credit history.
People are different and the big lenders can be very slow at accommodating changes in the way people work and live. This should be a great opportunity for the small lenders to find a niche in the market and offer products to clients that may not fit the often rigid criteria of the big lenders.
Rates are clearly very important to borrowers but that’s only where it starts as too many borrowers are simply excluded from the market. This maybe because they work on a zero-hour contract or work for an agency.
With rates at record lows, the competition should be criteria led, rather than trying to attract the same clients with a mortgage 0.1% cheaper than the next, as this is often a race to the bottom, which many small lenders would not have the pockets to fund.
Innovation, embracing change and having a close-knit relationship with the intermediary market is key. We as an industry that can provide these lenders with ready, packaged cases, fitting their criteria, without a need for expensive branches or advertising.