For all the chatter and discussion about and around the mortgage market, this industry is nothing without its products. All talks of improved lending levels, boosting the first-time buyer market, the Help to Buy scheme, the return of sub-prime, amount to nought if we do not have a supply of products to advise our clients on.
One of the sure signs that the market is in full recovery mode is the raft of products which have been launched since the start of the year. Lenders are clearly not letting the grass grow under their feet in 2014 and they are attempting to not just compete in traditional sectors of the mortgage market but also develop potential niche areas where there could be considerable demand.
This is obviously Kensington’s aim with its new range of products targeting contract workers who might otherwise have difficulty proving their income. It all seems to suggest that we might be returning to a lending market that actively seeks to help and support what I would say are non-standard borrowers. By non-standard I do not mean those with bundles of adverse credit because, even with the launch of Magellan last year, I suspect this is going to be a bridge too far for many lenders.
However, there were many other types of borrowers who were affected considerably by the Credit Crunch and the subsequent decision by the vast majority of lenders to pull all their products which were aimed at anyone deemed ‘non-standard’. Contract workers are obviously a good example of this, as are the self-employed in general who, with the demise of self-cert, were left with a greatly decreased set of mortgage products to choose from.
There is no suggestion that self-cert is returning anytime soon – and there are very good reasons for this – however it is positive to see lenders actively looking at borrower types who have been under-served in recent times. Of course no-one is suggesting that lenders sprint up the risk curve, however an approach which does seek to respond and react to changing work patterns in order to serve potential borrowers, deserves to be applauded.
The major factor in all this is the underwriting and lenders have to feel confident that they have correct and robust systems and procedures in place to deal with a borrower who might be deemed outside the norm. This is not a place for automated underwriting and without doubt it requires the human touch in order to be able to make the right lending decision.
The big unanswered question is where do lenders move next? I suspect we will see some hugely competitive sectors over the course of the year particularly in areas like buy-to-let and high LTV (residential) plus, of course, there remains the big unanswered question of how Help to Buy is really going to influence the market? I would also imagine that we are going to witness some major activity in areas like secured loans and bridging loans/development finance – the former because many existing borrowers will not want to remortgage off a highly competitive rate and the latter because there exists plenty of appetite to invest in property.
All this is of course good news for brokers. In 2013 our business alone saw an 88% year-on-year increase in its completed mortgage business and I suspect many quality advisory firms will have seen a similar uplift. With lenders looking to develop their suite of products and seeking access to customers who they might previously have shied away from, this year appears to be a good time if you are either looking for mortgage finance or advising on it.
Richard Adams is managing director of Stonebridge Group