I attended the Mortgage Summit last week and having not operated in the main-stream mortgage-market for over three years now, I found it particularly interesting to hear from Santander, HBOS, Natwest and BMs on their lending appetite, attitude to risk, views on MMR, the housing market and the economy.
Operating in the specialist sector, we have seen the emergence and the rapid growth of a number of challenger banks, including Shawbrook Bank, Aldermore Bank and Interbay Commercial, as well as a number of new bridging lenders appearing in the market. All have made massive in-roads in to taking a big chunk of market share where High Street lenders are risk adverse.This was evident when BMs claimed to fund 1 in 4 BTL deals in the UK, but clearly have no appetite to expand their risk curve and look at Ltd Company lending, portfolio lending, HMOs, multi-unit freeholds etc. So then, why would they when they have 25 per cent market-share, without taking on any increased risk? They are happy with their market share and clearly, the challengers are happy to ‘mop-up’ elsewhere. It seems like between the high street and the specialist sector, there are now funding solutions available for almost all circumstances.
There was a huge focus on availability of funds to first time buyers, but what surprised me initially is that over the two day event, there was no mention of lending to ‘credit-impaired’ borrowers. There must be hundreds of thousands of borrowers ‘stuck’ without the ability to refinance, due to past credit issues. This must also pose a huge future problem – not so much today with base rates sitting at 0.5 per cent, but when rates do rise, these borrowers will no doubt start to feel the pinch and will not be able to refinance, either due to credit profile, score or even loan to value limits being exceeded.
Not everyone has sufficient equity in their homes to allow them to refinance. I know Precise and GE are doing their bit for the Near Prime sector and Magellan are there for those clients with a one-off life event, which is over 12 months old, but someone has got to be the first to push the risk curve and make funding more readily available to those with a less than perfect credit history. The Beacon Home-Loans lending model would sit nicely in today’s market.
Some of the smaller provincials are happy to consider cases on a ‘price for risk’ basis and consider those less than ‘vanilla’ deals, but the market is crying out for someone to make a bold move into this space to help stimulate the market further. Based on what I heard, the high street will be in no hurry anytime soon to take this risk profile on board, so it has to be left to the challenger banks, the smaller building societies or a new entrant to the mortgage market to shake things up. With recent MMR rules and the European Mortgage Credit Directive looming, it seems unlikely that any lender would be willing to take this on and hence a large percentage of the UK population are ‘stuck’ exactly where they are. This too is an issue in itself.
The same can be said for the bridging sector, which banks pulled away from post credit crunch. The sector has boomed over the past three years and is now estimated to stand as a £2 billion market. Even though it only counts as a tiny fraction of the overall lending figures published by CML, the short-term lending sector still counts as a significant portion given it is still recognised as a ‘niche’ sector.
As Bank of England Governor Mark Carney has issued a warning that rapidly increasing house prices and mortgage lending pose the biggest current risk to the UK economy, I think we need to be mindful that there are two markets in play here. The London and South East market and then the rest of the UK. Whilst overall property prices are on the up, it is only London that is experiencing the alarming capital growth that should be of any concern. It seems, just as we celebrate the gradual recovery of the UK housing market and economy, we encounter scare-mongering headlines and talk of ‘bubbles’ and ‘price-crashes’.
The Government incentives for Help to Buy and the Funding for Lending Scheme have helped stimulate the market, assist first time buyers onto the property ladder and ensure first time buyer mortgage approvals reach the highest limit since pre-credit crunch. Excellent news, but until new houses are being built to meet the demand and needs of the nation, this is only half the battle.Quite simply, the planning laws and building regulation ‘red-tape’ surrounding new build developments need to be addressed, to enable enough new homes to be built to meet demand. Availability of suitable funding in this area remains limited, with the majority of it coming from specialist bridging lenders (not the high street). The government needs to offer sufficient tax-breaks and incentives to encourage builders to start building again, along with the sufficient availability of funding. Those lenders which have seen Government bail-outs from the public tax-payers’ ‘pot’ should be the first to offer such schemes.
Food for thought all round…