There is a viable alternative to the stagnant high street lenders, argues Steven Nicholas, chief executive of Tiuta plc
Halifax’s unpopular recent decision to hike its standard variable rate to 3.99% is the latest indication that major lenders are continuing to struggle when it comes to accessing competitive funding. Pundits are predicting the move will prompt an exodus of borrowers looking to remortgage elsewhere and it comes hot on the heels of the Royal Bank of Scotland nudging up its offset and One Account rates. It would perhaps be an over-exaggeration to say the power is shifting from the big banks to their smaller counterparts, but the underdogs are increasingly becoming a viable competitive alternative.
Mutuals have certainly benefitted from the funding constraints handicapping high-street banks. The latest figures from the Building Societies Association show that gross mortgage lending by mutual lenders has increased 32% year-on-year and approvals have soared 54% over the same time period. The mutual sector is also starting to show that it is prepared to offer mortgages to those who have been recently disenfranchised by the tightening of credit the Kent Reliance, for example, recently announced a product for self-employed borrowers requiring just 12 months’ business accounts rather than the usual three years.
Private and overseas banks have also entered the market to capitalise on the relative inactivity of the major UK lenders and are pleasing brokers and customers alike with their flexible criteria and strong appetite to lend. Last, and by no means least, has been the role of short and medium-term lenders in picking up the slack.
The bridging market more than doubled in size in 2011, with various estimates placing gross mortgage lending for the year in excess of £900 million. Whereas previously the sector was considered niche and only really suitable for those buying at auction, borrowers and brokers alike are waking up to the versatility of the loans and their full range of uses. Property investors in particular have realised the true potential and usefulness of bridging loans and are utilising them in their droves. After all, it is no coincidence that the buy-to-let and bridging sectors are both performing strongly in a simultaneous fashion.
All this provides food for thought for the major lenders and should hopefully guard against complacency on their part. Factor in new entrants like Virgin Money, the State Bank of India, Home & Savings Bank and Castle Trust as well as long-rumoured challengers such as Tesco and the traditional order that was so entrenched before the credit crunch could be well and truly shaken up.
This isn’t to say that bridging operations and other non-majors are immune to the funding issues that have so hampered high-street lenders, but by virtue of their size they are often more manoeuvrable and flexible when it comes to sourcing funding and establishing relationships with organisations that can generate funds.
As the bridging sector sheds its previous image as one-dimensional and becomes increasingly professional and responsible, this ability to attract funding should only improve and the £1 billion annual landmark has probably already been breached. This is actual still a relatively modest achievement when compared to the overall size of the UK mortgage market, but at a time when things are in danger of going stale, short and medium term lenders are proving that every little helps and there is a genuine alternative to the high-street banks.
We lost a swathe of lenders, mainly in the specialist arena, when the credit crunch hit, so it is encouraging to see the number of providers increasing as the market slowly picks up again. Competition is healthy not just for lenders themselves, but for brokers/introducers and their customers who are the ultimate beneficiaries of a thriving marketplace.