Enough is enough. I’m not talking about the song that has been crucified by the ghastly Just the Two of Us – a talentless reality TV show which combines a fallen ‘idol’ with ‘Z-list’ celebrities. No, instead I refer to the plea heard by lenders as they overcook the boiler room with sales soaring and no sign of any support services. Every year we are promised it will not happen, but often the same lenders disappoint us time and time again. So, who is your money on this Summer?
Product innovation used to be an effective way of cooling the temperature but many lenders are now finding themselves ‘pigeon-holed’ in a particular niche with one or two of their products providing the bulk of the business. Extreme caution is therefore required as a product withdrawal could effectively take them out of the market altogether.
Take The Mortgage Business (TMB) – its House2House product was hugely popular as rental calculations hardened down South. Despite re-pricing and reducing its self-cert LTV from 90 per cent to 85 per cent, business still kept on coming like zombies in the House of the Living Dead. It soon took the unprecedented step of shutting the doors to new business in 2004, hoping the other HBOS brands would cover for them – a very brave move indeed, which may still benefit them.
More recently, Future Mortgages offered a unique 100 per cent LTV allowing satisfied CCJs, and Rooftop Mortgages offered a self-cert two-year fix buy-to-let which completely turned its business objective around as it soon became a ‘buy-to-let lender with a little bit of adverse business’. Both lenders re-priced, however due to a lack of market alternatives – the brake failed to engage and they were forced into a corner. The niche they had carved had been too successful so they risked upsetting the goodwill they had built up. To prevent their risk profile from becoming unhealthily skewed, they pulled the products and, as a compromise, offered the packaging fraternity ample time to get the deals in. In hindsight, this generous move by Future may have backfired as it compounded its underlying problem leading to a New Year service hangover amounting to Bill Werbeniuk proportions. Future promised the product would be back in 2006; it had to, because, as I said earlier, certain products now become the whole reason to use a particular niche lender.
On the flip side, if you can operate outside the criteria edges yet remain within the bulk areas of standard self-cert and buy-to-lets, slowing down application flow can still work. Most memorably, BM Solutions introduced a 1 per cent completion fee (unusual at that time) to take the heat off the heightened self-certification media scaremongering at the time.
The trouble is, not everyone is a juggernaut like BM Solutions and, with lender saturation, niches are often the only way to distinguish themselves. Hence careful planning and extensive market research is essential to avoid service issues and unwanted business mixes. The niche lenders that will survive this ‘dog-eat-dog’ world are the ones that can dingle the sprat but write the mackerel, and spot the application ripple before it evolves into a tsunami to put more underwriter bums on seats.
Mainstream
Lambeth Building Society has launched a 4.49 per cent five-year fixed rate. Given the Bank of England Base Rate is 4.50 per cent this seems like a very attractive option for risk adverse borrowers.
In the midst of the industry crying out for clarity between ‘non-income verification’ and ‘self-cert’, Clydesdale Bank is the latest lender to offer fast-track referencing for remortgages. It seems to have approached the issue very sensibly, restricting the uplift on the existing mortgage balance to 10 per cent and also guaranteeing a one in 10 audit.
BM Solutions is selectively offering a 3.99 per cent, BBR less 0.51 per cent tracker for two years. I’m pleased to say we are one of the chosen distributors.
It was interesting to see Oakwood flexing its muscles and acquiring some of GMAC-RFC’s originations. Building its book in the niche areas may provide the platform to operate in the lower margin end of the market.
Buy-to-Let
The number of column inches given to Accord Mortgages regarding its non-launch of buy-to-let has brought a smile to my face. I’m convinced if it had launched it would’ve received less.
Capital Home Loans has spelt out exactly what it expects on new build valuations and site/block exposure. It also does not allow builder incentives.
UCB has expanded its portfolio total to 10 properties. It has two methods of calculating affordability. If used wisely the self-cert method of earned income could cater for the properties within the portfolio, which struggles to obtain rental coverage.
Kensington Mortgages is the first lender to hit the mass market with 90 per cent lending. Others are bound to follow suit but fair play to it for pushing the boundaries.
Self-Certification
Alliance & Leicester has announced it is expanding into all manner of niche markets, including self-cert. If it replicates its tradition of well-priced products then I am sure its market share will swell.
It is widely tipped that BM Solutions is going to announce its own affordability calculator.
Adverse
The niche adverse lenders will be worried as one of their USPs is being eroded by the big boys, with Mortgages plc and GMAC-RFC relaxing their non-conforming arrears policies in recent weeks.
Kensington Mortgages has split its range into two. Its traditional volume areas such as its light self-cert 90 per cent LTV will be picked up by the better priced ‘Simple Choices’ and greater emphasis will be placed on packager support to write the arrears of business it has failed to write in the pass under the ‘Extra Choices’ banner.
Accord Mortgages which has operated an online proposition is looking to expand its packaging allegiances to write more non-conforming business.
Richard Stokes is head of product development at The Mortgage Times Group
