Back in March, Paul Hunt, head of marketing at Platform, asked whether the non-conforming market could flourish with the current oversupply of lenders after investment banks, building societies and start-up companies entered the field.
Hunt looked at the range of products available, which had gone from a handful of options to a huge range, causing dilemmas not only for customers, but also for intermediaries who are facing more choice than ever. The feeling then was that this rapid expansion would cause consolidation and acquisitions for lenders who preferred to wait the market out.
Recent tremor
A recent tremor in the non-conforming sector was caused by Kensington Group issuing a profit warning, which was seen as the first signal of the pressures that lenders are facing. Its statement to the Stock Exchange announced that profits would be below expectations, which caused some to worry about the future of the company, while others were critical of its capability to judge the impact of the sector.
To follow the impact of Kensington’s statement, a major collaboration was made between Northern Rock and Lehman Brothers, with a range of non-conforming deals introduced. While the products are only available through the intermediary sales channel with applications submitted via the Northern Rock online system, the company remained positive.
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Anth Mooney, marketing director at Northern Rock, said: “We are open for non-conforming business which is great news for intermediaries and great news for their clients. Our mortgage range is competitively priced, with attractive terms and will be supported by dedicated business development managers, strong underwriting and efficient processing.”
So with the industry in this state regarding non-conforming mortgages, the questions that need to be asked are whether there too many lenders in the market, whether there is the business levels to support this offering and whether more lenders are expected to join the bandwagon.
Less sceptical
Neil Johnson, PR and policy manager at the Building Societies Association (BSA) commented favourably on the matter. He said: “There is a wide choice of products available and there is strength within that offering for people who want mortgages for environmentally friendly houses and canal boats, but the importance is to instruct buyers and make them aware of what they are getting and what it will ultimately cost them.”
Johnson was less sceptical than others about the dilemma faced by the industry, and acknowledged that the market exists for the less solvent society. With students in particular facing the hardship of debt and facing long periods either living with parents or in rented accommodation, non-conforming mortgages and 100 per cent plus packages are the only options available.
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Johnson said: “With people leading different lives and companies starting up offering new products there is various means of borrowing for all levels. It was the case 30 years ago that you didn’t go to university and were expected to own property by the time you were 25-30. Now you have a totally different situation with debt and people taking career breaks. Who knows what the situation will be like in 10 years time?”
Broker perspective
From the perspective of the mortgage broker, it is often perceived that more choice means more options to work through and subsequently offer to their customers. This view was echoed by Michael Brill, director at Baronworth Investment Services, who believes that the public is better off for the amount of choice offered.
Brill comments that ‘from the public’s point of view, it’s a case of the more, the better’, is the same as his opinions on the benefits for brokers, but he insisted that the service levels have to be good from all companies to make sure that the public benefits.
In regard to whether there is enough room for all the current companies, and whether there is enough non-conforming and specialist lending business for all involved to remain successful, Brill believes that there isn’t enough and as a result, more lending companies will face the prospect of collaborating when they realise that there isn’t the business, where ‘some will stay in, some will go out, and some will stay the same’.
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Despite the problems that the industry may be facing regarding this issue, it seems that the public needs to be instructed so that there is potential for growth. A survey by Beacon Homeloans revealed that only 19 per cent of customers had heard of the term ‘non-conforming’, while less than half of those surveyed identified primary users as ‘people with credit problems’. IFAs should rest easy though, as 44 per cent of consumers said they would speak to an adviser if they had credit problems.
