2016 is set to be a big year for the secured loan sector as the Mortgage Credit Directive comes into play. But a number of firms have been celebrating significant ‘years’ of their own of late. Loan Introducer speaks to three companies reaching milestone birthdays during the most important period in the seconds market’s history.
Harry Landy is sales director of Enterprise Finance which entered its teenage years this year.
Enterprise turns 13 this year – how has the market changed over those years?
From our inception in 2002 through to 2007, the market was a very different place. Those were the days of ‘easy credit’ where self-cert and adverse lending was freely available at high loan-to-value ratios and the market has changed beyond recognition to the extent where there is no irresponsible lending nowadays. The second charge sector was a £6bn-a-year industry before the global financial crash, whereas our latest Secured Loan Index shows that annual gross lending stands around the £850m mark at present.
What have been the highlights for the market and for you personally?
There were plenty of highlights prior to 2007, but perhaps the most rewarding thing was to successfully navigate through the largest financial crisis of all time and emerge unscathed on the other side. We stuck to our guns and did things in the right way without needing to revert to being a phoenix company or changing tack.
What do you wish you’d known when starting out?
I wish we’d been aware of the depth and severity of the financial crisis that was set to hit the UK in the latter part of the decade.
What do you predict for the market for 2016?
At present there is still a great deal of uncertainty around how the second charge market will adjust to becoming regulated under the European Mortgage Credit Directive. We are fully prepared for the changes and recently received our variation of permissions from the Financial Conduct Authority, but it waits to seen what impact it will have on lending levels and appetite. We will most likely see some strong numbers in the first part of the year until the regulatory implementation in March, followed by something of a lull similar to the one we witnessed in the mainstream mortgage market as it came to terms with MMR. Once this transitional phase is completed, lending will then rise steadily again.
What would be your top tip to someone entering the market today?
Maximise every opportunity available to you.
Steve Walker is managing director of Promise Solutions, which turns 13 into 2016.
How has the market changed since Promise was created?
How business is generated has changed massively. 13 years ago the big volumes were generated via the press and TV with many firms playing in that space including some lenders. That “direct to consumer” market has now polarised to the internet with a smaller number of players in that sector, and they are perhaps largely reliant on comparison sites. As a result more firms which survived the credit crunch have moved towards a broker to broker model, ourselves included. New and re-entrants have followed suit and over the last 18 months regulation has certainly driven the awareness of secured loans. We’re now seeing a lot of change surrounding the anticipation of regulation with firms working to get their houses in order. The big winner is the consumer with rates at their lowest ever although some perfectly prudent and sophisticated borrowers are starting to be denied products in the industry wide effort to protect Mr Average from himself.
What has been the high point of the last 13 years for you?
When we first started the business in 2003 we started with 95 people on day one. That was a big payroll to cover and a big gamble to take, especially considering the overhead we had with a 33,000 sq ft office! The highlight was to break into consistent profits during our first year. That’s one that stands out because it was a big gamble that we took.
What do you wish you’d known?
I wish I’d know who to trust, who not to trust and the fact the credit crunch was coming!
What do you expect to see in the market next year?
As a result of more mortgage brokers considering second charges I expect industry volumes to grow significantly although we may see a slight “hick up” around March as new processes kick in and pipeline transfers to the new regime. Once we are in MCD world I don’t think the impact of an advised process or the issuing an ESIS should be significant to volumes but will add cost to the process which will eventually filter through to the customer.
Firms will have differing states of readiness on these and other matters such as the treatment of customer fees, TCF and realigning their cultures. It may take some time for the industry as a whole to find a new level but I think it is inescapable that costs will rise and margins will be squeezed as the market re-prices itself. Consumers will get better loans but may find the process more cumbersome and many may not get loans at all unless lenders and brokers avoid overacting to regulation in the way the first mortgage sector did. Recent FCA studies are useful and more of the same will help the industry to get the balance right.
What advice would you give someone starting out in the industry today?
Don’t underestimate the costs, systems, training and hard earned expertise needed to operate in the sector. Be very thorough in your modelling and pessimistic in your forecasts. Do it right or don’t do it at all.
Tony Salentino is director of Complete FS which turned 21 last year.
What changes have you seen in the market over the past two decades?
The industry is unrecognisable. We have gone from an essentially free market, which was largely unregulated, to a highly regulated one. From a time when anyone could advise on mortgages and loans, to a significantly more professional environment. Customers are hugely better served and advisers are now part of a profession where competence is paramount. Latterly, the regulatory structure has led to lenders being more restricted in what they can do, which has may have acted as a brake on innovation and inclusiveness when it comes to underwriting, but overall the industry of today is in good shape.
What have been your high points?
M Day back in November 2004 was without doubt the day we remember most. The lead up to the day, the fear, but ultimately the overall positive effect it has had on our industry. In addition, the explosion in the specialist lender market over the last 20+ years has been incredible. Post 2008 and the credit crunch, the sector has not only survived but also continues to demonstrate innovation, transparency while bringing new entrants to market such as Kent Reliance, Precise and more recently Axis Bank. Personally I continue to be amazed and proud of the resilience the intermediary market shows despite the challenging economic climate we have seen over the last 20 years and the more stringent regulatory framework that has evolved. I take my hat off to them all.
What do you wish you’d known all those years ago?
Life’s too short, so don’t work as many hours.
How will the market change in 2016?
Against a still uncertain economic situation globally, prediction is always difficult. There seems to be no shortage of funding available into 2016 which is a complete turnaround from a few years ago. So I expect to see new entrants in the market, but also some changes in ownership of some of the smaller existing brands as funding brings with it the need to part with equity. Everything being equal, 2016 will be a good year to be an adviser and a customer as choice of product, cheap rates and a maturing regulatory environment, which benefits us all.
What would you say to someone looking to enter the market today?
Never stop learning what clients need. Specialise in key areas and find a partner to help you with more challenging cases, which will leave you free to engage with new clients.