Let’s not get carried away in our expectations of new lenders, says Hugh Wade-Jones, director of Enness Private Clients
Despite the current state of the UK economy, new entrants seem to be queuing up to enter the mortgage lending market at present. Virgin Money leads the pack having swallowed up Northern Rock, The State Bank of India is poised on the sidelines and Portillion awaits the green light.
Factor in Castle Trust and Home & Savings Bank, the will they-won’t they Tesco saga and relative novices such as Bank of China and Metro Bank and there are a whole raft of lenders looking to challenge the traditional hierarchy. While this increased competition is undoubtedly welcome and will hopefully benefit consumers, how many of these providers seriously intend to shape the market and be key players, and how many are simply paying lip service to our mortgage industry?
I know from my own dealings and discussions with fellow brokers that some of the newer entrants aren’t quite putting their money where their mouth is just yet, for example, The FT reported in November that Metro Bank had provided just 100 mortgages in its first 15 months which hardly sets it up as a volume player. It is understandable that new lenders need some time to adapt to the market, and they don’t want to start at a level of activity they can’t sustain, but is it too much to have expected Metro Bank to have been further along the curve by now?
Another reason to be slightly cautious about the raft of new entrants is the lack of clarity around their intentions for the intermediary market. It remains unclear which of the newcomers intend to fully utilise our channel and while this uncertainty remains, you can forgive brokers for not cracking open the champagne just yet.
Obviously we all have our fingers crossed that these lenders will realise the distribution potential of intermediaries and fully harness it, but some may choose to focus solely on direct business to start with. It has to be remembered that the UK mortgage market is one of the most complex and developed in the world and that overseas entrants aren’t necessarily used to utilising intermediaries in the way that we have become accustomed to.
A poll was recently run asking advisers which of the new lenders they expected to make the biggest impact on the market in 2012 and, perhaps surprisingly, Virgin Money wasn’t the favourite, languishing behind Castle Trust and Home & Savings Bank in third place. This shows that for all the good intentions and promise that Virgin Money has, brokers are still unsure that they can back up the fanfare with competitive rates, a real appetite to lend and – most importantly – embrace intermediaries to the extent they have suggested. Personally, the jury is still out until we start seeing some activity, but you would expect someone with the track record of Richard Branson and his team to make a real go of it.
All this is not to denigrate the intentions of new lending entrants, but merely to sound a warning before we get carried away. It speaks volumes for the UK mortgage market’s reputation that institutions are still keen to get involved despite the troubles of the past few years, so let’s hope that the debutants can shake up the natural order of things and restore some real competition to the market. After all, the more choice and variety there is in terms of products and pricing, the more the consumer – the main concern – stands to benefit.