BY CHRIS TAYLOR, CHIEF EXECUTIVE, TITLESOLV
Over the past few years, increased regulation of the bridging finance industry has placed mounting pressure on lenders to retain market share and improve the bottom line. When the 2008 financial crisis and resulting political scrutiny forced high street banks to withdraw from the large loan market, this niche offering was left (to some extent) for private banks and specialised bridging finance firms to supplement the financing gap. According to a recent article published in the Financial Times, the major banks are returning to the large loan market and this brings fresh challenges for the industry.
It is estimated that there are now over half a dozen lenders ready to offer loans of more than £1m in size, with Barclays, Halifax, Nationwide and Santander all announcing their intention to do so. They are incentivised to do so because they can lend more money whilst processing lower volumes, reducing the average mortgage acquisition cost. Low interest rates and high transaction volumes enable large lenders to offer very competitive terms and reduced loan conditions, delivering a simpler application procedure in the process.
Moreover, unlike private institutions, high street banks generally do not require borrowers to hold a minimum level of other assets as a condition of the loan and, typically, they tend to offer longer loan term lengths, running up to 25 or 30 years if required, instead of the five year terms or less that are common in the bridging market. Furthermore, these enhanced terms will allow the major high street banks to cherry pick the business that they want to write, whilst leaving the niche players the higher risk opportunities, so that they will be forced to compete through more competitive terms if they are to prevail in the medium to long term. In the face of this attractive proposition, private banks and other specialist lenders now need to work harder to attract and retain clients.
There is, however, still a large and receptive client base for niche lenders: individuals with unusual financial arrangements or irregular sources of pay, such as entrepreneurs and those reliant on investment income, as well as those resident abroad with overseas income, who may still be unable to borrow from the high street banks which are now applying much stricter lending criteria in light of last year’s Mortgage Market Review. Therefore, these individuals will in all probability continue to turn to the bridging finance industry by default, but how can firms retain those who may be drawn to – and accepted by – the big-name lenders?
One way could be to find ways to reduce cost margins and lending procedures, thereby delivering better loan terms and a more competitive overall proposition. Luckily, there are various options available to help firms steady their foothold and see off the competition. By using tools such as title insurance, firms can reduce the title diligence required on their entire portfolio, in turn delivering more favourable cost margins whilst originating a more secure loan in the process, the benefits of which can then be redeployed towards improved terms for larger loans. Title insurance can also remove some of the more onerous elements of the diligence process, freeing up liquidity and manpower, in turn reducing cost output and increasing productivity.
Lenders should therefore be aware of the changes afoot but not discouraged. There are manifold signs that the market is in a more robust position today than seven years ago, despite ongoing political and regulatory pressures. Although high street banks pose renewed challenges, there is significant market appetite for large loans, and the growing range of tools at lenders’ disposal offers a real chance for niche firms to take on and challenge their larger competitors.
Titlesolv is the trading name of London & European Title Insurance Services Ltd and is authorised and regulated by the Financial Conduct Authority.