Specialist lenders should be mindful of high street lenders potentially entering the space, but there are still barriers to entry, panellists say.
Speaking on a panel at the British Specialist Lending Senate, Buster Tolfree, director of mortgages at United Trust Bank (UTB), said: “The specialist lending market is not the same market today that it was previously. When I think about the high street dipping their toe… in our bit of the world, there’s a few barriers for them being successful in there.”
He said high street banks were regulated by the Prudential Regulation Authority (PRA), so have loan-to-income (LTI) constraints and interest coverage ratio (ICR) limits in place. This compares to non-bank lenders, which do not have the same level of regulation.
Tolfree noted that while there were banks in the space, like Aldermore, Shawbrook and UTB, the specialist lending market is “wider than just the banks that operate in it”.
“I think they only think about dipping into our end of the market, and we only talk about it when they’re not getting what they want in their core market. So, if the high street can get their tens of billions of pounds’ worth of lending away without having to take risk that they don’t really want to, then they’re going to continue to operate in that vanilla, employed, sub-70% LTV space, all of the kind of stuff that we consider classic high street type-borrowing [or] type of lending.
“They’re built for [the] sausage factory. Taking the time out to really look at complex cases takes time, it takes energy and skilled people, and that’s not something that you can get through a sausage factory process really, really quickly,” he explained.
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Tolfree noted that it was “something we need to keep an eye on; it would be foolish not to”.
However, he said: “I lose more sleep over our existing competitors broadening out and eating some of my lunch rather than the high street coming down and eating it.”
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Tolfree added that there was a “long history of example[s]” where big high street firms have bought specialist lenders because they are interested in net interest margin.
“Then, when they’ve started to unpack it and understand it, and then put the compliance team together [and] put the credit teams together, they end up thinking: ‘This isn’t quite what we want to do. This isn’t core to us,’” he said.
Steve Cox, chief commercial officer at Fleet Mortgages, agreed that high street lenders were attracted to specialist lending due to net interest margin, “which continues to be squeezed in vanilla residential lending”.
“[High street lenders are] looking at securitised deals. They’re looking at returns. They’re saying: ‘What is that thing over there? Because that looks quite profitable to me.’ Whether they are successful at doing it and transacting it is very different to saying: ‘We can fund it, and we can do lots of it.’ Getting it from A to B from everyone’s point of view, where everyone gets paid, does require expertise from people,” he noted.
