As the UK economy emerges from the financial instability that has tainted the past few years, the mortgage market is showing strong recovery signs. The market is finally settling down after a few years of turbulence, consumer and lender confidence is returning with a flourish.
With that the demand for mortgage finance is increasing and this demand has not just been an opportunity for established lenders but it has also created opportunities for new lenders to enter the fray.
Many may argue that mainstream lenders have been over-cautious with their lending criteria since the crisis, viewing many previously acceptable borrowers as too risky. With that in mind, we have seen an increase in the number of new lenders looking to enter residential mortgage lending. 25 new banking licences have been requested from the FCA in the last 12 months. Maybe all these new lenders know that there are a large number of reliable borrowers that have been under-serviced by tougher new lending rules and this in turn has resulted in the reduction of public confidence in the mainstream mortgage providers. As a result, an opportunity for innovation has been created. These new players feel they can win over customer trust and position themselves as an alternative to traditional lenders.
So what does this mean for brokers? Having more new market entrants is certainly creating a better environment for intermediaries. These new players are more willing to offer new-style products and in some cases take on nominally riskier borrowers. This is already driving market competition and the hope is that it will affect product pricing as a result. The added competition allows advisers to service borrowers better as there more products on offer.
As well as the potential for price wars in the future, it is also important to consider the product innovation a new raft of lenders is likely to drive. The hope is that more niche, but sensible, mortgage products might be back on the table after a hiatus. More innovative products will better service the market overall and ultimately give advisers and borrowers greater choice and flexibility.
However, since the crash there is always likely to be some unease when lenders start talking about ‘product innovation.’ Thoughts turn back to the days of 110% mortgages, Credit Default Swaps and sub-prime borrowers. Rightly concerns are raised around lenders bringing back catastrophically bad habits. Of course no one wants a return to these days and nobody should think that opening the market up to new entrants will in anyway encourage that. This is a view underpinned by the regulator and the Mortgage Market Review (MMR) is an example of rules designed to bring exactly that stability to the industry. Of course all new entrants will be subject to the same regulatory compliance as established lenders and rightly so.
As a servicer, we welcome these changes as it presents benefits to brokers, the borrowers and in turn, the general market. There are challenges too, but we hope to see more players driving competition. As long as each lender, adopts sensible lending criteria and has a sound business model they should be welcomed. The more providers of that ilk we have the healthier the market can be. It can therefore be in a better position to service the increasing demand of mortgage applications that the economic recovery is now generating.
For lenders willing to adopt the appropriate processes and systems, there is no reason why they cannot gain market share and restore some real competition in the market. Ultimately, the more choice and variety there is regarding products and pricing, the more the borrowers and brokers will stand to benefit.
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