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A scatter-gun approach?

Scott Philipson

June 17, 2006

10 years ago, a business development manager (BDM) invited me to attend a clay pigeon shoot. To my and all the other first-timer’s surprise, we all seemed to be more proficient than Elmer J Fudd. You see, the accuracy required is not as high as you might expect because the spray is actually very forgiving. I liken it to the way that building societies now enter the non-conforming mortgage market with a scatter-gun approach to broadening their appeal. They do, on the face of it, get it partly right because there is enough freely available information around regarding interest rate, but this is just the tip of the iceberg when it comes to understanding the complexities of propping up this packager-dominated sector.

For example, unlike Dickens’ Oliver, it is not just a matter of asking for more as the case gets increasingly complex by applying their traditional ethos on underwriting (because that is what they have been used to). It is more a case of doing the opposite – working closely with the customers, extracting the bare minimum within the bounds of responsible lending.

Taking this leap of faith to complete the full consultation process can take time – one thing they do not have as underpinning. This is a wacky race. The established players want to ensure the building societies can only chip away at the no-margin end of the market while, at the same time, preventing any unknown entrants (with personnel from previously established players) entering the market with fanfare criteria better than their own. As such, lending policies are being relaxed (at a rate never witnessed before) in an attempt to ensure that packagers like our own are empowered to win business thereby maintain loyalty.

For example, Preferred Mortgages was the only lender that would lend to 90 per cent loan-to-value (LTV) on a buy-to-let, and even that was via a very limited distribution. No one would go near it. Then, out of nowhere, we suddenly had five more options. At the time, Kensington Mortgages and Rooftop were alone in assisting the brand new self-employed, but I know of three other companies that are now seriously considering doing the same in the next month. 95 per cent LTV self-cert was unheard of at the start of the year – now Amber Homeloans, GMAC-RFC Partners and Platform are all targeting this market, with the latter now even accepting minor adverse.

While all of this is going on, most of the building societies will be gazing at the interest rates wondering why they can’t make in-roads into the market and scratching their perplexed heads over why online is not transferring to this market when it works so well in mainstream. Why should an on-site underwriter and offer production make a difference? Why would a packager want to white-label the service when our brand is so prestigious? Why do free valuations appear to have such an impact? And why does our cascade not retain the business? Unless they become more ‘open-minded’, they might never know.

Mainstream

Nationwide still has the pick of the two-year fixes at 4.65 per cent, offering assistance towards fees if remortgaging (available to 90 per cent LTV).

Ipswich and Dunfermline Building Societies have leading discounts, giving a payrate of 4.15 per cent.

RBS Intermediary Partners has launched an affordability calculator across its four brands, which provide equivalent multiples of up to 4.95 plus joint incomes (subject to credit score).

The Mortgage Works, the intermediary focused arm of Portman Building Society has dropped mainstream products from its latest rate guide – telling signs?

Buy-to-let

Platform has revised its buy-to-let proposition to include 90 per cent LTV and adverse credit options. Regrettably, Northern Ireland remains excluded from this.

The Mortgage Works has also launched to 90 per cent LTV on three and five-year fixes, choosing to keep the rates the same but increasing the completion fee by 1 per cent so that, in some instances, the combined fee will be as much as 2.5 per cent. It assures me its customers are more concerned about gearing towards the maximum LTV rather than charges. Most of the rental calculations are now at payrate with first-time landlords considered to 85 per cent LTV. Its non status option has increased to 70 per cent. Loan sizes are also generous with £500k to 90 per cent LTV and £750k to 85 per cent LTV.

Self-cert

Mortgage Express has followed the rest of the market by splitting rates into LTV segments.

As mentioned above, Platform now joins the fold of 95 per cent LTV providers with its non-conforming range. This is a jump from its previous 85 per cent LTV position and shows it means business. Like First National, it has removed self-cert loadings on its lower LTV plans.

Adverse

LIBOR resets were typically 4.72 per cent – the same level as I write.

Preferred Mortgages has added a new banding, ‘near-prime extra’, allowing £1,000 CCJs, meaning the other bands have shuffled along and become more generous in their adverse acceptance.

Platform has shifted its focus from rate to criteria. A couple of areas which might appeal are right-to-buy remortgages, where the property has just been purchased at the discounted price without the need for a mortgage reference. 95 per cent LTV self-cert is available to recently self-employed first-time buyers who have had minor credit problems.

Sincere congratulations to Kensington Mortgages for being recognised for Innovation in the Queen’s Awards – it’s nice to see our market being revered for a change. And with the promotional work it has put-in to tell us about it, I think it must be after the marketing award next


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