Each day for the past week our experts have looked back over the last 12 months and pondering what 2011 might bring.
Today, Alan Cleary, managing director of Precise Mortgages, shares his thoughts and opinions.
“To say 2010 was an eventful year for Precise Mortgages is probably an understatement but nonetheless some very positive events occurred throughout the year. Most notably was the launch of our BTL product range which heralded the first wholesale funded new entrant into the UK mortgage space since 2007.
Funding was and is the biggest hurdle to lending whether you are the biggest lender or the smallest. Fortunately we have a very large and forward thinking investor behind us and this allowed us to get off the blocks.
The BTL market has transformed beyond recognition over the last three years, reducing in size by a staggering 80% as lender after lender abandoned the sector. In my view this was driven firstly and most obviously by a lack of funding but more interestingly because many lenders with funding decided to leave the sector probably due to a fear that arrears and losses would be significantly worse than residential.
The BTL sector has never experienced a downturn as it only really took off from 2001 onwards, but looking back now the BTL sector has performed better than residential not worse.
The argument that it has counter-cyclical features has been borne out and we can now see that when house prices fall and the economy contracts more people will rent and thus force up rents and rental yields.
Precise Mortgages’ decision to enter the space when everyone else appeared to have run for the hills was based on its sister division Exact’s analysis of mortgages. Between 2008 and 2010 Exact had analysed over 36,000 mortgages with a value in excess of £5.3billion; effectively re-underwriting the loans using up to date credit bureau information and our scorecards to establish potential arrears rates and loss severity.
This gave us a unique insight into borrower and collateral behaviour post credit crunch which put us in a unique position of understanding what to do and what not to do going forwards. Armed with this knowledge and a significant level of experience in the management team we were able to articulate to investors why now is a good time to start lending.
One thing that you should not do in this market if you are a new lender is go in all guns blazing, that would be a costly mistake; we made a cautious and controlled entrance in order to establish how good the credit quality actually was and what the pricing points were.
The BTL products are now selling exactly at the level we want them and we are slowly but surely getting our message across to the broker market. Some maxims hold true however, brokers still want to have a good experience with service levels and need a decision quickly, even if it is a decline.
Waiting around for days for a lender to make its mind up is old fashioned and can often make the broker look unprofessional in front of their customer.
More than ever I believe scorecards give the best service experience to brokers with the quickest and most consistent decisions; our mortgage platform gives a decision in principal in minutes and that is what I believe brokers will demand.
In November we became the first new lender to gain authorisation from the FSA since 2007 to enter into regulated mortgage contracts, it was a thorough process but that is what is required in this economic climate.
We have just launched our Home Owner product range aimed at borrowers who traditionally would have been served by high street lenders but are finding it impossible to get a mortgage. Provided they have strong affordability and a deposit of 20% Precise Mortgages will bring new funding into the market for this category of borrower. It is too early to say how that is going but we have high hopes for 2011. Our commitment to the intermediary market is as strong as ever and we hope that we can win their support.”