Metro Bank is one of those relatively new lenders that falls under the ‘challenger’ banner – billed to disrupt the status quo of the mortgage marketplace.
The FTSE 250-listed bank’s director of mortgage distribution, Charles Morley, smiled gleefully while discussing the company’s mortgage division's financial performance.
A glance at the firm’s latest annual results shows there is reason for cheer. Its mortgage book grew to £3.6bn from £2.15bn.
In all, total lending grew 66 per cent to £5.8bn by 31 December 2016 – which the bank attributes to a host of drivers, notably the continued expansion of the company’s residential mortgage offering.
The results indicate that the bank is on course of fulfilling its ambition to become a top-10 lender by 2020.
Whether the bank will meet this objective is largely down to the performance of its intermediary mortgage business as, according to Mr Morley, 80 per cent of the lender’s mortgage business is introduced by intermediaries.
He said: “It is all about allowing the customer to have a choice. If the customer wants to walk through the doors of one of our branches to speak to a mortgage consultant and access one of our products – brilliant. If they choose to go down the intermediary route, that’s equally good.”
Challenging the market
Its proposition for intermediaries was initially restricted to the south east through John Charcol in 2012, but was later rolled out to brokers nationwide from November 2014.
The challenger bank launched its first loans in 2012 in what was a precarious time for the mortgage market, which was still licking its wounds after being savaged during the 2007 to 2008 global financial crisis.
Its late arrival on the scene means the bank is not subject to issues over legacy systems, which have buffeted many longstanding lenders, according to Mr Morley.
He said: “This means we are able to listen to the market, react and implement strategy quickly.
“We have changed our online system on numerous occasions since we launched our site for brokers three years ago." The ability to scan and attach documents, for example, came very early in the process.
Bank and building society branches have disappeared from high streets all over Britain in recent history in response to a shift in consumer behaviour and a surge in the popularity of online and mobile banking.
Metro Bank adopts a contrarian approach and has pledged not only to keep its doors open, but even to increase its branches from 48 to 110 by 2020.
Having physical branches is a boon when it comes to brand awareness – especially for banks in the ‘challenger’ category, according to Mr Morley. He added: “We opened a store in Brighton recently and our intermediary business from the south increased. The customers see the store and then become familiar with the brand.”
The bank, according to Mr Morley, ensures a low-risk loan book by offering "simple" products for mainstream borrowers, while adopting an underwriting process befitting the "customer-centric" label, because every case is considered manually by flesh-and-blood underwriters.
The lender is not involved in securitisation – which converts mortgages and other loans into tradable securities – and raises capital on loans solely through bank deposits.
After reaching the £8bn of deposits milestone, the bank aims to hold almost four times the amount by 2020. The swelling in deposits would bolster its lending capability and result in better deals for customers, Mr Morley said.
However, changes to tax and underwriting criteria have made the climate less conducive to buy-to-let mortgages, with many industry commentators predicting a fall in deals this year.
Conversely, other niches of the mortgage market have experienced a reverse in fate. The sub-prime sector, for example, is going through a resurgence after having been greatly reduced following the 2007 to 2008 financial crash.
The size of the second-charge mortgage market, meanwhile, has burgeoned to £1bn.
Looking at different market segments
Mr Morley said: “We will continue to look at all the different segments of the marketplace, but our core propositions are residential and buy-to-let mortgages. We also operate in the new-build market where we are working to expand our presence at the moment. There are opportunities out there and over the coming months we will move into those markets."
Mr Morley was coy about elaborating on which markets he referred to.
The Mortgage Market Review is another regulatory event that had a telling impact on brokers’ workload, due to tougher affordability checks and compliance paperwork.
This has resulted in calls by swathes of the adviser community for lenders to raise their procuration fees to reflect the changes.
Metro Bank began paying a fee-for-retention business 18 months ago, Mr Morley revealed. It also operates a mortgage retention proposition that offers existing customers access to a host of rewards for remortgaging, including a £500 saving on product transfers.
Mr Morley said: “We got all the major networks, mortgage clubs and the top London brokers in the same room and said to them: 'Rate switching retention – what do you want?' For the first time in my 25 years in this industry, they all agreed on the same thing.”
CHARLES MORLEY’S CAREER HIGHLIGHTS
Jan 2017 – current
Director of mortgage distribution
Metro Bank
2014 – 2017
Head of mortgage distribution
Metro Bank
2000 – 2013
Head of key accounts;
head of partnerships;
head of sales
Kensington Mortgages
