David Johnson, managing director, secured lending at Shawbrook Bank, talks to Robyn Hall about the booming second charge market
Secured loans are back in vogue and 2013 is looking to be the best on record since 2009, with latest figures from Loans Warehouse Secured Loan Index suggesting it will breach the £500,000,000 barrier by the end of the year.
And it’s a figure not gone unnoticed by David Johnson, managing director of secured lending at Shawbrook Bank.
Indeed, if PMS’s John Malone is the Godfather of the mortgage industry then there’s no doubt that Johnson will be taking over the crown when Malone retires in November (the pair have been pals since the early 1970s, having both started out at Cedar Holdings).
Johnson has been involved with the UK secured lending industry for over 40 years and has an impressive track record. A savvy businessman it was Johnson that by and large created, developed and brought scale to the specialist mortgage lending industry in the UK. A co-founder of the Link Group, between 1999 and 2002 he was managing director and major shareholder of iGroup, selling the business to GE in 2001 in a deal that had a transaction value of £216m.
He went on to become CEO of Commercial First Mortgages before taking on the mantle of managing director of secured lending at Shawbrook, one of the latest challenger banks.
“For Shawbrook we are relatively new on the block but the faces have been here a long time,” he says. “The name on the tin might be new but the ingredients have been there a long time.”
The true size of the UK secured loans market is difficult to pinpoint but Johnson reckons the data from Loans Warehouse is pretty accurate.
“Those figures come from the likes of ourselves, Nemo, Blemain, Central Trust, Norton and our friends at Prestige,” he says. “Clearly we have no handle on what the clearers are doing and what the building societies are doing for second charges but I would say overall it’s a pretty accurate figure.”
So is there more room for growth?
“What’s happened to date is that lenders have asked brokers for more business and they’ve done that by either reducing rate, offering a higher LTV or more commission. But what that’s really doing in my view is trying to entice a larger slice of the same cake. I think though if we want more business from brokers we need to be innovative and we need to help grow the market.”
Innovation lies at the heart of Shawbrook’s ambition to grow the market – earlier this year it launched a 95% LTV deal and so far the credit agreements being issued have been encouraging.
“We as lenders can’t be just saying to brokers we want more business – we need to do something about it which is why we think out the box and try to be innovative,” he explains. “We’ve listened to what brokers have said – after all they are the mother of invention, they’re the ones at the coal face. They know what problems they face – they know why loans are not going through, they know what keeps the telephone from ringing. So we’ve listened to them and tried to come up with three or four new additions that are not just based around interest rates, LTV or commission – they’re products that are currently not available in this space.”
However, creating new areas of business inevitably leads to more competition – but it’s a point not lost on Johnson.
“I see that as a double edged sword,” he says. “Clearly the more lenders there are the more competitive the market becomes. That said, on the plus side brokers should be encouraged that there are more lenders there – it’s no longer a one or two shop lending vehicle. In a way the market will grow by new lenders coming in but clearly we are competing in the same pond.”
Shawbrook prides itself on old-fashioned standards of proper service and common sense decisions. It has transparent loan products and a reputation for treating customers fairly.
“I don’t like the idea of limiting distribution. If it’s one case a month or 100 per month every case is important to me. I’ve always believed intermediaries hold the key to the route to market and I don’t see any change in that personally,” says Johnson.
The landscape for second charge mortgages has changed dramatically since the credit crunch. Seven years ago you could open any tabloid newspaper, turn on any satellite channel and you’d more than likely see an advert for a company in the second charge sector.
“At the time if you got 100 leads you could place 99 of them,” says Johnson. “The only criteria at the time was you had to be alive when the loan completed. But now, what with regulation and lack of funding out of those 100 leads you might be able to place 20. But to place those 20 you’d probably need three or four different lenders on your panel.”
“Regulation has made things tougher but that’s probably a good thing,” he adds. “Those that do things properly and correctly will survive and flourish and those that take short cuts and don’t play by the rules will be out of business – and that’s a good thing.”
So what’s next for Shawbrook?
“I think the market will continue to grow. For Shawbrook we are a bank and reliant on retail deposits. We’re a new challenger bank some two years into our journey. What we find though is if you offer an attractive rate of interest to a depositor you’ll attract funds – there is no doubt about that. So we don’t have funding issues and being a bank has clearly helped us in the second mortgage space. We’ll continue to innovate and drive the market forward. The market will grow and we’re in a pretty good shape. We have no tarred history, we have no legacy issues. We had a clean sheet of paper and supportive shareholders.
Clearly there will be competition – when things start to work everyone wants to be in that space.”