News Review: Specialist Prime
Reasons to look past the Big Six lenders
by Alan Cleary, managing director, Precise Mortgages
We’re all well aware the mortgage market has taken a battering and i have no intention of raking over old ground. However, hidden in the statistics is the plight of borrowers who were previously prime who now find themselves locked out of the mortgage market. the big six lenders - royal Bank of Scotland, Lloyds Banking group, Barclays, HSBc, nationwide and Santander - apparently account for 90% of new mortgage loans and we know their criteria has tightened significantly over the last few years, leaving thousands of seemingly good borrowers out in the cold.
Weather warning the uK mortgage market is facing into some pretty strong headwinds in 2011 which is likely to have a material impact on gross lending. consumers’ disposable incomes are under siege from an increasing tax burden, rising living costs and faltering wage inflation. on a regional basis some areas will be hit hard by an increase in unemployment largely driven by government spending cuts whilst private sector job creation is likely to be centred on the south east. House price inflation is
almost unanimously expected to be flat or negative in 2011 but will have significant regional fluctuations. all of these factors suppress lenders’ appetite for new
business whilst dampening consumers’ desire to spend. on top of this uncertain
macroeconomic backdrop is the problem with liquidity. Some 32 lenders have utilised the Special Liquidity Scheme (SLS) to a total of £185bn. this is due to be repaid over the next two years or so. this will further restrict new lending as lenders use capital to repay debt. the big six are consequently
focusing on low risk mortgage lending whilst widening margins. okay if they are a prime customer with 25-50% equity in their properties but not so good if they have a higher loan to value or less than perfect credit score. Strong headwinds don’t mean we should all give up and go home but do suggest it will take a little longer than normal to get to sunnier climes.
Don’t despair Before you jump off the nearest building there are some positive signs that will offset the negatives. consumers are paying down debt and saving more which frees up some capital. there is also some evidence that the securitisation markets are beginning to thaw and some building societies have been successful in raising capital via covered bonds. Some non-bank lenders have also been successful in raising funds in the capital markets. experts have forecast that
2011 gross lending will be similar to 2010 which at the very least means that mortgage brokers have a chance at maintaining and in some cases growing their business volumes.
10 mortgage introducer FEBRUARY 2011
Underserved customers one way for brokers to grow their business is to spend some time on the borrowers referred to earlier. these people often have a good credit history but struggle to get a mortgage with a high street lender because they haven’t got sufficient equity and do not have a perfect credit score. they often believe they
cannot get a mortgage and therefore have stopped looking for one. this is borne out by the vastly reduced number of housing transactions - our own research suggests well over 500,000 people are unable to get a mortgage on the high street. the timing is also ripe right
now. as each month goes by we get closer to the monetary Policy committee meeting that declares a rise in the Bank Base rate. the money markets are sensing that at some point over the next 12 months that day will arrive. i don’t have a crystal ball
but if Portugal and Spain manage not to implode and no other nasty shock to the system occurs i would expect rates to rise by this time next year. this is great news for
brokers as borrowers need help to find the right mortgage for their circumstances. many of these borrowers will be lying dormant in brokers’ customer bases and can be educated that they do have options when looking for a mortgage. i am not suggesting every borrower can get a mortgage,
as quite clearly that’s not true, but there are those who have stopped trying.
Adviser value anecdotally, there are brokers not trying to place loans that don’t fit the high street lenders’ criteria because it is seen as too difficult or too much hassle for not much reward. that is slowly but surely
changing. i estimate there is over a £1bn of lending appetite destined for this type of borrower. if a borrower walks into
their local branch of HSBc or Halifax or the bank that says it is the “most helpful bank in Britain” and the borrower does not fit their mortgage criteria, what can they offer? the answer is nothing at all;
they will most likely apologise and send them packing, eager to get onto their next customer. that borrower can traipse up and down the high street completing pointless fact find after fact find. if they are sensible they
will call their local mortgage broker and increase their chances of finding the mortgage that they need. if i were a mortgage broker i would be busy telling my customer base that mortgages are not as difficult to obtain as they might think. there are more lenders
out there than just the big six and i would ask brokers to be persistent even when their customers do not fit the norm. there is £1bn plus of lending destined for this type of borrower in 2011 and the only question is which broker it will be distributed through. it’s in your hands.
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