Due to increasing pressure from the small lenders, the Bank of England is allegedly considering easing regulatory burdens on challenger banks to help level the playing field. It can be argued that existing capital rules place them at a competitive disadvantage and, without a far reaching approach, it is possible that smaller banks will remain restricted to a narrow part of the market. As a result, we could start to see too many fish in too small a pool, but this could certainly be helped by easing the compliance burden.
Interestingly, according to the CML, specialist lenders and challenger banks increased their gross lending by 56% in 2015, which translated to a 2.9% growth in their collective market share. In contrast, established building societies and retail banks increased their gross lending by 9% and 4% respectively.
The increasing number of entrants that are waiting to come back into the market highlights the continued and growing appetite for specialist lending. Some existing lenders in the specialist arena are even looking to reengineer their proposition by moving into the buy-to-let or residential space while trying to gain permissions, for example.
At Brightstar, we are increasingly taking on some of the bigger lenders, particularly in areas like self-employed and buy-to-let with limited company HMOs. I recently read an article from Barclays on how lending to self-employed borrowers is still considered to be within the complex area of the market. This should not be the case and is just one of the many borrowing myths that have arisen around specialist lending in recent years.
The reality is that the majority of the high street do not treat it in the same way as the specialist market does. In fact, some banks have been easing home loan rules for the self-employed. For example, Kent Reliance recently cut the amount of trading history it will consider from three years to just one.
During a period of national change, it is positive to see that the Bank and the PRA have been calling for a more holistic approach to easing burdens surrounding regulation. Without a more proportionate tactic, it is likely that smaller banks will remain restricted to a narrow part of the market which is underserved by the larger banks. Although no decision has been taken as yet, creating a competitive and level playing field for banks, regardless of their size, is of course very welcome.