Advertorial: Trends in specialist lending

Q: The findings of the specialist mortgage market survey suggest that the majority of respondents believe they are only as likely, or slightly more likely, to be advising on adverse mortgages now than five years ago. Did you find that surprising?

Harry Landy: It is surprising as it covers a period when a lot of lenders withdrew from the market and there are, undoubtedly, a lot more sub-prime products available now than there were immediately after the financial crisis.

It is true to say there has always been an appetite for those types of products, but now there are more lenders in the marketplace, which is great because that means competition between the lenders is good.

Some people are at the prime end, some are at the non-conforming end, which gives us a wide spread.

As a result of the client doing multiple transactions on a yearly basis, there is an opportunity for the broker to increase the volume of business they do Harry Landy

I do not think sub-prime today is the same as it was five or six years ago. Then, the term “sub-prime” was for people who had lots of mortgage arrears, lots of CCJs and were borrowing high LTV loans and it was probably quite a dangerous place to be.

Now, the customers are more likely to be non-conforming in terms of mainstream lending. We are seeing people who have maybe missed a credit card payment, mobile phone payment or one mortgage arrear.

They are not bad payers or bad borrowers, but they have maybe had a blip. It is those types of clients we will continue to look to serve. I do not think we will see a return to that very high-risk lending.

Q: Enterprise Finance has a strong history in bridging loans. Do you think the results indicated by the survey reflect the opportunity present for advisers in this area of the market?

HL: Bridging is a product area we have been involved in ever since our inception in 2002. We are very well heeled in that area.

As a result, in 2010-11 when the bridging loan market really started taking advantage of the banks’ lack of liquidity and appetite for deals that were not completely vanilla, we definitely built up a very strong reputation as the go-to broker in that space.

We are working very hard at Enterprise Finance to educate brokers on the benefits available to them in bridging finance and showing them the types of situations where they would find the products of use. What we tend to find is either brokers are involved in the marketplace and they understand it and therefore go looking for it, or if there is little knowledge and they choose not to get involved.

What we are keen to demonstrate is that bridging finance has the potential to introduce brokers to a whole new set of clients they would not have dealt with before. They tend to be more entrepreneurial business owners who will maybe look to do more than one transaction at a time.

As a result of the client doing multiple transactions on a yearly basis, there is an opportunity for the broker to increase the volume of business they do.

Q: Encouragingly, almost half of respondents demonstrated an interest in bridging as an area to increase their business in the future, although a greater number saw opportunities in complex buy-to-let and commercial mortgages. Is this representative of the trends you have noticed?

HL: Overall, the second-charge mortgage market has been helped immeasurably by the implementation of the mortgage credit directive, because we now have the same reputation as the mainstream mortgage market has attached to it. It is an FCA regulated sales process and interest across the board has increased.

As we have discussed, the number is perhaps lower for bridging in this survey because it is still lagging slightly in terms of brokers’ understanding of what it can offer.

To try to counteract that, we have got a team of eight business development managers out on the road going to see brokers all the time, to educate them on the benefits of the products. We also run workshops all over the country, as well as making educational videos that feature on our website.

I think the more brokers we get through to, the higher the number will be for those looking to move into that area.

Lenders have got back into the swing of dealing with self-employed people and reading accounts. Harry Landy

Meanwhile, the figures for complex buy-to-let were not surprising, as they were backed up by research we have previously done, which showed that brokers are seeing a great opportunity set there.

Similarly, commercial mortgages have also attracted a lot of interest lately. It is our hope that with more work on our part, as well as other industry players, bridging will also begin to capture more imaginations too.

Q: The survey recorded a relatively mixed picture in the amount of business respondents were doing for self-employed clients. How does Enterprise Finance look to serve this segment?

HL: As it stands, around 45 per cent of the loans we arrange are for self-employed people. I personally have always held the view that self-employed people have a relatively attractive overall profile as they have greater autonomy over earning money, while an employed person can, in effect, be made redundant with four weeks’ notice at any point.

After the financial crisis, the mainstream lenders were very rigid in their lending criteria and a lot of self-employed customers took advantage of self-certified mortgages, because it was quicker and easier for them.

When the banks withdrew from the self-cert market, they were not necessarily good at understanding people’s accounts and different structures of self-employment, for example sole-trader, limited company or limited liability partnerships.

However, because we had always dealt with those customers, we had a pretty good knowledge of it those dimensions, and we were able to cater to those clients with a better understanding of the products.

I think as the mortgage market has evolved over the last two to three years, lenders have got back into the swing of dealing with self-employed people and reading accounts, and they have started to take a bigger share of that market. It certainly has the potential to be a growth area for intermediaries.