The growing importance of bank funding, second charge lender innovation, product transfer procuration fees and the continued growth of bridging were just some of the topics discussed at this year’s British Specialist Lending Senate.
Held at Brooklands in Surrey, the invitation-only event for senior leaders in the specialist lending space, be that lender, broker, network or club, had sessions on the next chapter for the buy-to-let landscape, the ever-changing political landscape and its impact on the mortgage space and market opportunities in the coming year.
Claire Lomas MBE kicked off the day with a motivational speech about her journey in overcoming adversity, which had many in the room, including me, tearing up.
She became paralysed from the chest down after a horse riding accident, but went on to became the first disabled person to walk a marathon in an exoskeleton suit, learned how to ride a motorbike and went on to qualify as a pilot.
The day also featured break-out workshops on specialist buy to let, second charge lending, complex and specialist lending and property investor diversification, capped off by a networking dinner in the evening to decompress with a glass of wine or two.
Find our thematic highlights below of key areas that were discussed.
Bank funding to be bigger part of the market
The funding markets for buy to let have been volatile over the past few years, and while some sectors of this market may still be tricky in the coming months the overall impression was one of improvement.
The securitsation market was one that was singled out as “unpredictable” by some, with an expert presenter adding that when writing mortgages the company does not know what the cost of securitisation will be in six to nine months, or if they will be able to securitise them at all.
The general consensus seemed to be that it is not the cheapest or most reliable form of funding and that may not necessarily materially change in the near-term, but other types of funding are changing the specialist lending landscape.
Bank funding is becoming a more predominant part of the landscape, whether that it is in the form of challenger banks entering the space over the past decade, high street lenders acquiring larger specialist lenders or specialist lenders partnering with retail banks to write business on their behalf.
The latter two trends look set to continue, especially as the savings market for challenger banks is becoming more robust as many may look to move to specialist lenders to get better rates.
Second charge lenders becoming more innovative
Second charges were also a popular area of discussion, with rumours of new lenders in the market still circulating.
These have been milling around in the market for some time, with three lenders thought to be eyeing the market since last year.
However, a new element to this is the innovation that this has spurred within incumbent lenders, with some of them widening their criteria and improving their flexibility to be more competitive.
As one person said, competition breeds innovation and this can only be a positive for a sector looked to become an even more important part of the market as borrowers not wanting to disturb their lower fixed rate explore other avenues of additional borrowing.
The topic of second charge broker fees also came up, with some noting that singling out second charge fees was taking a “cheap shot” at the sector and that the added complexity in the deal warranted a higher fee than the mainstream sector.
However, one person said that can it really be fair to charge a high fee as the average loan sizes are smaller.
The debate continues.
Product transfer proc fee debate rages on and lenders pushing back on fees
Another key debate of the day was around product transfers and procuration fees. This has been an ongoing issue in the market as product transfers have become a larger part of brokers’ businesses but the renumeration can be up to half of that of a purchase deal.
Broker representatives in one session said that to do a “true product transfer” with a full fact find that was complaint with Consumer Duty’s good customer outcomes, fair value and avoiding foreseeable harm warrants a full procuration fee.
Another said that lenders had “forgotten that brokers are their actual sales force” and that they should “play fair with their broker market”.
They added that some lenders were paying improved procuration fees, but the current state of the market meant that brokers were taking a pay cut the more product transfers they did, which was a “huge problem.”
The same person said that brokers should charge a fee for product transfers and the key thing was to talk to the customer about how they would scour the market for alternative options, as well as having a placeholder product transfer option which would save them time and money.
Another aspect that came up in the session was lenders “flexing their muscles” and starting to push back on broker fees that they considered too high, and this was something to look out for.
Bridging lending on the rise
From a bridging perspective, the sector seems to be going from strength to strength with demand remaining high.
Industry executives said that some of the greatest demand comes from the conversion of standard buy-to-let properties to houses in multiple occupation to increase yield, with that trend expected to continue this year.
It was signaled as an opportunity for brokers to talk to their portfolio landlords if they were struggling as a possible option, depending on the property and specific local council regulations.
Some suggested that another £4bn to £4.5bn could be added to Association of Short Term Lending figures on loan books as some lenders are not part of the trade body and others have different reporting schedules. The latest figures from the trade body reached a record high of £7.3bn.
Basel IV could have ‘significant impact’
One speaker said that Basel IV legislation had flown under the radar, but this could impact several sectors of the market in the coming year.
The guidelines will come out in May/June this year, with implementation due next year. Proposed changes include reworking the approach to risk-weighted assets, possibly internal ratings and setting regulatory capital floors.
The speaker said that these guidelines, whatever they may be, could have a “potentially significant impact” in terms of the cost of bank funding in various parts of the mortgage market, whether it is higher loan to value loans, buy to let, holiday let and loans on properties that can be technically considered commercial.
The speaker noted that mortgages written now would come under these guidelines so watch this space.
Anna is a reporter for Mortgage Solutions and assistant editor for Specialist Lending Solutions, both B2B sister titles of YourMoney.com. She has worked as a journalist for over four years, initially in the specialty insurance sector before moving onto mortgages.