“I wouldn't compare it to the Titanic but it is a big old business already.” Birmingham Midshires' newly appointed head of lending, Michael Bolton, is musing over the lender's impending entry into the sub-prime market.
Already a business boasting more than £10bn of mortgage assets, Birmingham Midshires is a sizeable player in the specialist lending sector, but one which is soon to grow further with its move into the adverse-credit market this autumn.
Bolton, formerly Future Mortgages' high-profile marketing manager, has been drafted in by BM in part to aid its expansion from provider of self-certification and buy-to-let loans to provider of sub-prime products.
It is a move Bolton believes will create the biggest non-mainstream lender in the UK. “Under the BM brand, there will be the complete one-stop-shop lending solution. From a broker's perspective, it will be attractive because they would rather not be forced to shop around for their specialist loans – they will be able to get a full suite of products from a lender backed by a brand consumers know and trust.”
BM is owned by Halifax, which acquired it in April 1999. Bolton says the decision was made last year for BM to become the specialist lending arm of Halifax, with the move into sub-prime lending part of the strategy.
He expects BM to process more than £1bn of specialist mortgage business next year, a figure that excludes the mainstream products which it will continue to offer.
At present, mainstream loans acc-ount for around half of BM's overall mortgage business but this is set to change with an aggressive pricing strategy which Bolton claims will shake up the sub-prime sector.
“Our pricing will reflect the risk-reward nature of this type of lending but with the excess profits that prevail in the sub-prime market, putting the customer first can and will be part of our strategy. We will be launching products which will redefine the pricing structure of this market.”
BM's new product range will be distributed through its branch network, telephone operation, intermediaries – including L&G's mortgage club and Scottish Amicable's Premier Service – and packagers. Bolton is keen to point out that the new mortgages will be available to all intermediaries, unlike many sub-prime lenders which only distribute through a select panel of brokers.
Although there will be no restrictions on the distribution of its products, BM does not have anything like the market profile of its parent. Whereas many would consider this something of a handicap, Bolton sees it as an advantage.
He says: “The BM brand at the moment is not exactly invisible but it is hardly at the forefront of brokers' minds. However, what it does mean is that we are not carrying any negative baggage and gives us a clean slate to publicise the business when we become more pro-active later in the year.”
By that time, FSA requirements for the mortgage market will have been published and the regulatory landscape more clearly defined. In the interim between publication and implementation (thought to be next August), the Mortgage Code Compliance Board will be conducting an investigation into what it considers are the main challenges to the market.
BM will have a role to play in giving the regulator its thoughts and views on subjects including fee disclosure, spiralling procuration fees and the role different types of intermediaries play.
Bolton believes that fee disclosure will be a hot topic once FSA regulations bite and claims – along with many others – that the mortgage market cannot sustain sky-high procuration fees in the medium term.
He says: “The fees being paid at the extremes of specialist lending cannot continue because a substantial proportion of them are not being declared under the mortgage code.
“Once the regulators have a better understanding of how the market works, the loopholes which allow this should be closed fairly swiftly.”
Despite the controversy which still surrounds adverse lending, Halifax is by no means blazing a trail among the large lenders by offering sub-prime products through a subsidiary brand – Britannia recently acquired Platform Home Loans – but the Halifax name will feature more prominently than most on the marketing literature of its specialist arm.
Bolton believes this app-roach will become increasingly common. Whereas mainstream lenders have traditionally been wary of sub-prime, he believes a sector worth more than £5bn a year was only going to be ignored for so long.
He says: “Why are we seeing this shift? Margins. They are simply much higher in sub-prime lending than in mainstream. I think we will see specialist lending becoming a core element for many of the large marketing groups in the near future.”