The non-conforming sector is one of the major success stories in the mortgage market, but as margins decrease and new entrants launch their propositions, we can expect to see a changing landscape, although one which is not without potential.
Launched around nine years ago as a distinct marketplace, the non-conforming mortgage market has consistently grown and created thousands of innovative products, catering for every type of client, from the self-employed to those with seriously impaired credit histories. In terms of business prospects for 2006, I believe the number of remortgages will continue to steadily increase and we expect to see plenty of competitive deals on offer, which is good news for brokers and their clients.
All lenders are chasing the attractive near-prime sector and brokers can expect to see some tempting incentives and products on offer. This sector will also edge nearer and nearer to high-street lending, with products being designed to capture borrowers with less than £1,000 CCJs and no arrears or those who have simply failed the credit score.
Dynamic marketplace
In its early days, non-conforming lenders were a small clique – now it is a dynamic marketplace with many providers, and one that major institutions and banks want a share of. GE, Lehman Brothers, Merrill Lynch, Morgan Stanley and Deutsche Bank, for example, are among those backing providers and this indicates the investment potential, particularly when compared to the prime sector which produces small margins. Unsurprisingly, most high-street lenders have decided to set up non-conforming arms and one key trend has been for boundaries to become blurred.
However, more competition will ultimately mean good news for borrowers, as pricing will continue to decrease gradually over the course of the year. More lenders for intermediaries to choose from will mean a bewildering array of products and criteria for them to remember and for those only transacting one or two cases a month in this sector, such recollection is impossible. Packagers will undoubtedly exploit this issue and continue their dominance in the non-conforming sector, as they can provide expert assistance to intermediaries in helping them choose the right lender and mortgage product for their clients.
Simplifying the process
To operate in the specialist mortgage sector, it is now a prerequisite to offer an online decision tool and we can expect almost all lenders to have such technology by the end of the year. The important point concerning new functionality is whether it actually helps intermediaries sell your products by making the process simple and easier than current methods, or those available via your competitors. For example, throughout the development process for ‘Clickdecision’, we conducted extensive research with intermediaries to understand their needs and frustrations with current online offerings.
The same research approach is currently being used in the development process of Platform’s online application facility – due to be launched later in the year. With Home Information Packs (HIPs) looming on the horizon, it is already being mooted that automated valuations may become the norm, especially with lower loan-to-value (LTV) cases and so such functionality may eventually lead to near instant offers. However, many hurdles will have to be overcome before this is a reality.
Very early in our development of Clickdecision, our usability research and feedback from intermediaries made it clear that we must offer ‘binding’ decisions. Unlike a decision-in-principle (DIP), a binding decision offers a full credit search and scored rating so that the intermediary knows if Platform can lend on that case or not. This gives the intermediary confidence that the decision will not be overturned unless information on the subsequent application is different to that originally stated. When all lenders in the market can offer the reassurance of this type of decision, it is likely that the term ‘binding’ will eventually become redundant: a decision will simply be a decision.
Third party integration
The next challenge faced by lenders who already have online decision/application systems is allowing integration with third party systems, which allows intermediaries to use their own systems to submit business directly. Platform has been developing XML interfaces for its online functionality with some key partners. Such functionality avoids the need to re-key data and is a major service benefit.
The non-conforming mortgage market has come a long way in a relatively short space of time. We have largely shaken off tags such as sub-prime and are seen as offering a range of solutions to a large percentage of homebuyers and investors. We still have some way to go in raising awareness about our work in this important sector, but in 2006 I see a good year ahead which will also suit those brokers looking for opportunities.
Paul Hunt is head of marketing at Platform
