The boss of a new specialist lender has taken aim at its rivals, claiming new entrants have taken the easy route to market with buy-to-let, secured and bridging loans, instead of a truly differentiated proposition serving borrowers with bad credit.
Bluestone managing director Matt Andrews said although challengers sometimes offer small tweaks to typical lending criteria, they primarily gain customers by just lowering rates, potentially “eating each others lunch” in an increasingly busy part of the market.
“FCA mortgage lending statistics prove that new entrants are avoiding adverse credit customers, so it is time that we saw healthy competition enter the market to help more borrowers improve their unique financial situations.”
Australian specialist lender Bluestone launched into the UK market in November, with a range of products designed for the self-employed and contractors who struggle to meet traditional credit checks.
He said the development of sourcing systems is vital. “These tools need to filter customers accurately in order to be able to offer the best products suited to their particular needs, especially for those with adverse credit histories or unusual financial circumstances”.
Specialist lender Magellan Homeloans entered the market in 2013. Managing director for lending Simon Read said for some the profits in less tightly regulated areas trump “being innovative or having a well-differentiated proposition”.
“Bridging, for example, is a high yielding unregulated activity that, if undertaken correctly, can also be low risk. That makes it an attractive proposition for a new lender seeking quick access to high, short-term returns.
“It’s a similar story with the buy-to-let market, which in the main operates outside the FCA’s regulatory regime, offers higher margins and is easier to enter than the fully-regulated residential mortgage market,” he stated.
The truly specialist market is more challenging, said Mr Read, with a much smaller total size, lower margins and closer regulatory monitoring. He welcomed new entrants, but warned that simply easing criteria and pushing up LTVs is not being innovative.
“There is a very real danger that too many cooks will spoil the broth and the industry needs to guard against slipping slowly back into bad habits,” said Mr Read. “We need to ensure that lending standards are not eroded and the needs of vulnerable borrowers are not compromised.”
“It is time that we saw healthy competition enter the market to help more borrowers improve their unique financial situations.” Matt Andrews Alan Cleary, managing director at Precise Mortgages, argued that specialist lending is not necessarily about adverse lending, but more about parts of the market that are undersupplied by high street lenders, adding “in reality the adverse market is tiny”.
“As for whether new entrants are eating one another’s lunch, I am not sure, but I can say that I have not noticed any competition from them.”
In April, ex-Mortgages PLC boss Trevor Pothecary detailed plans to re-enter the specialist sector as chief executive of The Mortgage Lender.
Launching this month, it will aim at the self employed, people with complex incomes and those who require lending into retirement. He said he considered buy-to-let as a quicker route to market, but “it is a segment of the market already well served”.
Kensington has been in this market for many years, with head of sales and distribution Steve Griffiths stating: “There has of course been a lot of noise and publicity around new lenders joining the specialist lending in recent weeks.”
He hoped this will raise awareness about non-mainstream lenders, adding: “Brokers will have a better understanding of what specialist lenders do and will therefore be more inclined to look at them.”
