There is no doubting that competition in the residential mortgage sector increased considerably throughout the second half of 2013.
While mainstream residential players appear to be upping the ante and creating a fully functioning and competitive marketplace it will be interesting to see whether lender appetite also extends further into niche, more specialist areas. Specialist lending is, of course, a rather broad product definition to consider, often covering sectors as diverse as complex prime, shared ownership, buy-to-let, secured loans and more.
But across most specialist areas there is a growing appetite to lend and a recognition from many lenders that certain types of borrowers are now not the mortgage pariahs they might have been seen as in the years post-credit crunch. This represents good news not just for those borrowers but also brokers and I suggest advisers revisit those clients who might have once been turned down for finance.
Criteria changes mean borrowers with unusual employment circumstances, say, or inconsistent incomes, those wanting to purchase non-standard properties, others who have deposits funded by third-parties such as builders or shared ownership schemes and more will all find they are now in a market where their needs are far more likely to be accommodated.
In buy-to-let gross mortgage lending, levels exceeded £20bn last year, up a third on 2012. Some indicators suggest it could top £30bn this year particularly if the MMR does curtail residential lending and lenders look to increase business volumes elsewhere such as non-regulated loans. Secured loans – says the Loans Warehouse index – touched almost £500m of lending last year, up over 44 per cent on 2012, while bridging loans – according to the West One Index – hit £2bn over 2013.
A recent report from Fitch suggested that non-conforming lending levels had increased in 2013, albeit from a very low base, and the lending was being conducted at the light-adverse end of the market for those borrowers who had only just failed lender scorecards but had strong affordability levels and equity in their properties.
Magellan recently cut its rates following feedback from brokers that its pricing was too high and its new range now starts at 5.42 per cent rather than the eye-watering Libor plus 8 per cent which preceded the shift.
It will be interesting to see whether this re-pricing motivates brokers to actively recommend such products to borrowers.
I still sense a degree of reticence from many when it comes to non-conforming borrowing and perhaps rightly so. However, we are not talking about mortgages for heavy adverse customers or 125 per cent loans here and therefore I sense that more lenders will be willing to offer credit repair propositions, along the same lines as Magellan, in the future.
Competition is to be welcomed as consumer choice is a key regulatory objective. Better still, as more lenders look at the potential to achieve improved margins, it seems likely that while product numbers and competition will increase, pricing might well be on the way down.
Rob Clifford is chief executive ofIf I Were You