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Non-conforming lender Mortgages plc believes the challenges to innovation posed by regulation will see lenders bounce back with some interesting products and it has its own range lined up, including plans for affordability-based lending.

Mortgages plc is aiming to double its volumes and treble its share of the mortgage market in an ambitious growth drive.

Sales and marketing director Peter Beaumont says the introduction of a new range of products on January 28 will be the start of its relaunch into the market.

Nikko Principal Investments, the majority shareholder in the lender, sold its holding to Merrill Lynch on November 1, 2004 at the dawn of mortgage regulation. The non-conforming lender now operates as a wholly-owned subsidiary of Merrill Lynch.

There have been several overseas forays into the UK mortgage market but Beaumont believes that few further players will be willing to enter an already overpopulated arena. He says: “We saw US giant lender Countrywide taking the decision not to come into the UK. There comes a point at which you say there are sufficient players. You also need to have a certain scale and capital-adequacy requirements – which can be daunting – to grow aggressively. We have all of this behind us. Our acquisition by Merrill Lynch has given us access to cheaper funding, which we intend to take full advantage of.”

Mortgages plc is running an advertising campaign in the trade press in a bid to recruit to its sales team, the underwriting team and telesales support.

Its new products include a two-year fixed rate and a three-year fixed rate, both aggressively priced with no early repayment charges. Both will be available up to 90 per cent loan to value. A stepped discount and rolling discount mortgage will also be available.

Buy to let is another area that Mortgages plc will be looking at aggressively. Beaumont believes the BTL sector is still playing a very significant role in the UK mortgage market. He says: “There has been a huge reduction in first-time buyers, offset two-thirds by BTL investors.If they do not keep buying, this may stall the market.”

The firm will also be reviewing its lending criteria to broaden its customer base. Beaumont says: “We are not going to go into the full-blown prime market but what we call the margin-positive prime market. Our aim is not to take on the HBOSs and Portmans of this world but we will be cornering our sector.”

Another scheme going into a six-month pilot is an affordability-based mortgage launched with AWD Home Finance. The assessment is based purely on income and extended income multiples are based on what is appropriate for the individual customer.

A niche lending arm, Infinity Mortgages, funded by Mortgages plc, is doing extremely well. Infinity focuses on specialist and non-conforming lending through intermediaries. Approaching its first anniversary, Infinity has written a record amount of business in January and December.

Beaumont says Mortgages plc is also in the process of working on its e-proposition. He hopes the full range of products will be available online in the third quarter of 2005. The focus will be on simplicity of access and easy navigation.

Mortgages plc is aware that 2005 will be a competitive year for products and pricing. Beaumont says preparing for regulation made innovation a challenge. Therefore, lenders will be bouncing back with some interesting products to keep each other on their toes.

Beaumont says: “There will be a focus on price and product more than ever before. There will be more pressure on margins and they will be reducing but hopefully not by too much. Procuration and packager fees will consequently have to give. These levels will be coming south over time and rates will sharpen up. This is the way lenders will be aggressive.”

Along with some interesting products for intermediaries, he believes there will be increased focus on remortgaging this year as there will be much more debt consolidation. He also thinks now is the time for intermediaries to meet the demands of regulation after what was a tough transition for some.

Beaumont says: “I am not saying the majority of mortgage brokers are not ready but it may be a steep learning curve for some. Quite rightly, the FSA will in its visits be looking to catch those who are not compliant.”

Another market change for which Mortgages plc has prepared itself since mortgage regulation is the role of packagers. It has in the past relied heavily on packagers but, with the onset of mortgage regulation, decided they have to prove they can add value in the chain. As a result, 110 packager relationships have been brought to an end. It now deals with between 80 and 90 packagers but this may also be reduced.

Beaumont, who has been in financial services for about 18 years, estimates that Mortgages plc has 5 to 6 per cent of the non-conforming sector. Despite the market slowdown – a combination of regulation, traditional seasonal effects and market confidence – he believes business will pick up by the second quarter.

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