Bob Young: ‘Innovation’ can be a euphemism for risky lending

Ryan Bembridge

December 15, 2017

Fleet Mortgages chief executive Bob Young has taken a swipe at so-called ‘innovators’ who go up the risk curve by lending at a higher loan-to-value.

While Fleet has kept stress testing buy-to-let business at 125% at 5% this year, unlike a number of other lenders, Young (pictured) felt the bigger problem is lending too much or to the wrong people.

Young said: “I sit at round tables, people talk about mortgage innovation and I literally bang my head on the table.

Three in five Fleet applications from portfolio landlords

“If I came up with a 90% buy-to-let tomorrow the words ‘innovation’ would scream over the trade press.

“It’s not innovative – it’s stupid.

“Is Evel Knievel brave or stupid? Arguably brave but he’s broken a lot of bones, so my view would be to let someone else go over on the motorbike.”

Fleet is neither regulated by the Prudential Regulation Authority nor the Financial Conduct Authority.

Indeed Fleet left its income coverage ratio at 125% at 5% this year, despite PRA-regulated lenders being pressured to take the buy-to-let tax changes into consideration.

While business that only fits with an income coverage ratio of 125% is generally considered riskier than 145%, Young stressed that lending safely is still his number one priority and he would never write business for the sake of it.

He added: “I could wave two fingers at the PRA and FCA but I would never do that.

“We’re not regulated but we have conversations with the regulators and we’ve got a good reputation with them.

“I think they do a good job and lenders do need to be watched.

“Lenders forget – their corporate memory is really bad. Old guys like me tend to retire.

“Someone younger comes along and says let’s do such and such. They could do it but that would dynamite the industry.”

Ray Boulger, senior technical manager at John Charcol, expanded on Young’s points.

He said: “Innovation is certainly a word overused by providers, just like ‘as a responsible lender’ – I am not holding my breath to get an email from a lender which starts off ‘as an irresponsible lender’!

“Some so-called innovation is simply reintroducing a feature which used to be common up to 2007 – to be innovative you’ve got to be doing something nobody has done before.

“Bearing in mind that many lenders had a maximum LTV for buy-to-let at 85% in 2007 and today no lender offers more than 80% and the vast majority have a maximum of 75% or less, if any lender uses the term ‘innovative’ to describe increasing its maximum LTV to 2007 levels is an abuse of the English language.

“I would hope journalists would either find a way of making fun of such a claim or ignore it!”

Boulger went on to claim there has been little genuine innovation in the market since 2007, and nothing in buy-to-let since that time has justified the word.

Regarding having a lower income coverage ratio Boulger said that, while you shouldn’t generalise, it can lead to having lower quality business if a lender is not careful.

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