Competition is absolutely vital in any sector and the mortgage market is certainly no different. Over the past few years there has not exactly been a flood of new lenders coming to market and there are many reasons for this – after the credit crunch it was perhaps no surprise that few institutions wanted to dip their toes into the market, however as time has moved on it has perhaps been regulatory pushback that has stopped more new entrants moving in, rather than commercial considerations.
This however looks like it is changing. In effect the FCA has simplified its authorisation process for prospective new lenders which means they do not need to jump through the same regulatory hoops that were necessary when we had the FSA. For example, capital requirements for new banks have been toned down from £5m to £1m and the FCA have, what they call, a ‘mobilisation’ option which allows institutions to raise funds and to take part in certain activities.
It all means that those seeking entry to the UK mortgage market feel far more comfortable about the length of time it is going to take them to secure authorisation. According to the latest figures, throughout the year to March 2014, the FCA held pre-application talks with 25 potential lenders and five new lending licenses were actually granted – these were for Axis Bank UK Ltd, Union Bank of India (UK) Ltd, FCMB (UK) Ltd, UBA Capital (Europe) Ltd and Paragon Bank plc. It goes to show the continued lure of the UK mortgage market and it will be interesting to see how many of those other 25 secure their authorisation in the next 12 months.
So, what does it mean for brokers and their clients? Effectively more lenders equals more product choice and hopefully more innovation. One of the ‘new’ lenders not mentioned above is the Family Building Society, which has been established by the National Counties Building Society. Not so much a brand new society but one institution giving birth to another.
However, its launch is important because it is effectively focusing (unsurprisingly given the name) on the role of the family in supporting a mortgage. Thus we have a product range which is specifically aimed at the support family members can give to others in terms of providing deposits, acting as guarantors, using savings to offset mortgage interest, etc. It also offers mortgages to those who have gone through significant life-changing events such as divorce or having children. And it is willing to offer these types of products at high LTVs – and increasingly important point for those looking to secure their place on the property ladder.
While none of these products are what you might call ‘brand new’ they are targeted and are a direct response to the changing needs of borrowers, particularly first-time buyers who without the support of their family would, in many instances, have no chance of purchasing a home.
I suspect other new lenders will also need to carve out their own niche in the mortgage market because if they are coming to market with a simple ‘me too’ residential offering that is slightly less competitive than the big banks, then they are likely to struggle to make head-way. Instead, we would like to see a focus on the changing nature of society in the UK and a commitment to provide products that meet the different needs people now have. For example, people are working longer so we will need mortgage products that recognise this and go beyond the traditional maximum ages. In the same vein perhaps lenders might look at the recent changes announced in the pension market and work up products that fit in with a desire to invest in property using part of a pension pot.
Fundamentally however I hope that lenders recognise the importance of intermediary distribution in all of this particularly if they want to launch softly and they want to keep a strong hand on the tiller. We’ve already seen many new operators opting for a limited distribution panel at launch and I suspect this will be the model for many new entrants – this means that advisers need to choose their networks and distributors carefully in order to make sure they are in a position to offer their clients these new, and hopefully, innovative products when they come to market.
Richard Adams is managing director of Stonebridge Group