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Brexit sees mortgage lenders retreat from market

Increased competition and growing concerns over the economic climate could see specialist mortgage lenders reassess their approach to new business in 2019.

The start of the New Year saw the announcement by two lenders that they would cease new mortgage lending.

Secure Trust Bank began consultations with staff to cease new lending based on the current economic climate on January 7, while Fleet Mortgages withdrew its entire range on January 8 as the lender waits for its next funding line to be made available.

Paul McGerrigan, chief executive officer at Loan.co.uk, said: “The continued political uncertainty will present challenges for the smaller mortgage lenders.

“The fear that Brexit’s impact will drag on has led to increased diligence when obtaining funding lines.

“Anyone with this model will be working a lot harder to secure ongoing funding in the short term and we could see more product lines being withdrawn temporarily in the first quarter.

“Newer entrants to the mortgage market and smaller lenders will be nervous, continually assessing their positions in the early part of 2019.

“The challengers are always at a significant disadvantage to the big mortgage lenders due to their funding structures and cost of funds. Brexit is placing more pressure on them.”

According to Paul Lynam, chief executive of Secure Trust Bank, which listed on the stock market in 2016, it had “been a difficult decision to take” to consider pulling the plug on new mortgage lending.

There will be no impact on existing mortgage customers or new applications in progress during the consultation period, which is to be concluded in February.

While Fleet Mortgages does expect the funding issues to be resolved before the end of January, it has stated that all decisions in principle and applications received on January 8 will be declined.

David Hollingworth, associate director, communications at L&C Mortgages, said: “Although these announcements came in swift succession the action taken by Secure Trust and Fleet seems to be quite different.

“Fleet suggests that it’s a victim of its own success in the speed with which it’s used its funding and hopefully we will see a quick return to market.

“Secure Trust in contrast seems to be taking a longer-term approach to its withdrawal from mortgage lending but leaves the door open to a return in the future.

“Mainstream lenders are likely to consider how to broaden their proposition in a bid for improved volume, especially when pricing is so competitive.  However, I don’t think we should expect there to be a flurry of withdrawals and many of the specialist lenders already have well established brands and know their market well.”

Shaun Church, director at Private Finance, agreed: “From our perspective, whilst it doesn’t look great that they happened it quick succession it isn’t something that is going to continue to happen.

“Secure Trust Bank’s withdrawal from the market based on increased competition and a difficult economic climate highlighted the importance for new entrants to have a strong, niche product that stands out from the crowd.

“When you look at the number of new entrants to the market and niche areas being serviced, this is bound to happen once or twice.

“Not everybody can make a success of what they are doing, as in the case of Secure Trust. Coming into that market is not easy so you have got to stand out.”

Mr Hollingworth added: “With more lenders now looking to make their mark it does raise the question of whether the growth in lender numbers is hitting the high point and whether there could even be some contraction if lenders find it harder to find their niche.”

Mr McGerrigan, however, suggested more effort is made to ensure the continued success of smaller, niche lenders.

He said: “It is important throughout this that every effort is made to ensure smaller niche lenders continue to increase their market share for the long term good of borrowers.

“Short term uncertainty aside the UK mortgage market is incredibly robust and I expect it to bounce back strongly once clarity returns.”

Source: FT Adviser

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Data rules could force lenders to change mortgage criteria

The General Data Protection Regulation (GDPR), which has given consumers the right to challenge automated decisions made by banks, could force lenders to change certain lending criteria.

The data rules, which took effect on 25 May, mean people turned down for a mortgage, credit card or loan because a ‘computer said no’ can challenge their bank’s decision and demand it should be reviewed by a human.

Ray Boulger, senior technical manager at John Charcoal, believes there could be some long-term benefits in the data rule change.

He said the problem in the past was a lender did not have to give any specific reason for rejecting an application, they could simply refer the client to the credit agency they worked with, whereas now they have to justify and explain their decisions.

Criteria around County Court judgements for instance, which can be handed down for small debt-related offences such as unpaid utility bills, and could trigger a rejection, may be reviewed, he said.

He said: “There is a difference between [an applicant] who is not aware of a CCJ and somebody where it is a conspiracy but some lenders’ criteria doesn’t really differentiate between that.

“In the short term lenders may be choosing to do nothing and take a wait and see approach but this is an area that gives borrowers more ammunition and if enough borrowers take action lenders may feel uncomfortable about rejecting an application based on certain criteria, and they might well choose to change their criteria.”

The General Data Protection Regulation (GDPR) does not prevent banks from using automated processes but it requires firms to alert their customers to such processes and have appropriate services in place for them to appeal.

David Hollingworth, associate director of communications at L&C Mortgages, said the prominence of lender privacy policies may help give customers more clarity around their right to challenge automated decisions.

But he said it was yet unclear whether challenges would lead to lenders undertaking an individual underwriting process.

He said: “In many cases though this is unlikely to make for a significant change in the way that borrowers make their applications.

“Automation clearly has some benefits in speeding up processes and borrowers are still likely to accept that automated decisions are part of the process.”

Where he thought the new rules could help was to uncover a situation where the application failed simply because data was input incorrectly.

Santander and HSBC told FTAdviser they used automated processing but would be happy to review their decision when challenged in line with the General Data Protection Regulation (GDPR).

Liz Syms, chief executive of Connect Mortgages, did not think the General Data Protection Regulation (GDPR) would make much of a difference to the big lenders’ processes.

She said clients already had the right to review their submitted data or appeal a lender’s decision before the General Data Protection Regulation (GDPR).

She said: “GDPR, I believe, is more about formalising the rights to appeal and also the rectification of data error in these circumstances.

“If there are no data errors however, it does not oblige the lender to change their decision just because the automated decision has been challenged.”

Source: FT Adviser

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FCA Seeks To Set Free ‘Mortgage Prisoners’

The City watchdog is calling for reforms to help “mortgage prisoners” who are stuck on high borrowing rates but not allowed to switch.

Tens of thousands of home owners who took out loans before the financial crisis are trapped on lenders’ standard interest rates because of changes to rules on whether they can afford repayments.

It means that even if they have been paying off their mortgages every month they may not qualify to switch to a deal which is cheaper.

The Financial Conduct Authority (FCA) is to consider seeking an industry-wide agreement to approve applications from those who took mortgages out before the crisis and are up-to-date with payments.

But this would only help a small fraction of the estimated 150,000 stuck in this position and for the rest it is seeking talks to find other “possible solutions”.

The findings are part of an interim report by the FCA into the mortgage market which found that around 30% of customers are failing to find the cheapest mortgage for them, typically overpaying by £550 a year over the introductory period of the loan.

It also said that there were around 800,000 consumers who could switch at the end of introductory periods, but did not, to cheaper two-year deals that would typically save them £1,000 a year.

The watchdog wants to make it easier for consumers to work out at an early stage for which mortgages they qualify to make it easier for them to assess and compare those products.

More broadly, however, the FCA found there were “high levels of choice and consumer engagement” in the mortgage market.

Home buyers today typically take out long-term mortgage contracts with short fixed interest rate periods at the start, after which the deal changes to a standard “reversion” rate which is typically higher.

The FCA found that more than three-quarters of consumers switched to a new deal within six months of moving to a reversion rate – but that leaves a substantial minority who do not.

It also identified a relatively small proportion of borrowers known as “mortgage prisoners”.

These are consumers “who took out a mortgage pre-crisis, are on a reversion rate and up-to-date with repayments, and would benefit from switching to a new deal but cannot”.

That is because, since the crisis, there have been major changes to lending practices and rules aimed at ending the problem of people borrowing more than they could afford.

In the case of “mortgage prisoners” it may mean that they are effectively told a deal is too expensive for them to take on even though they are currently paying more.

The FCA believes there are 30,000 such customers with authorised mortgage lenders and a further 120,000 on a reversion rate whose mortgages have been sold on to non-regulated firms.

A proposed agreement between lenders to approve applications from these borrowers for mortgages would help around 10,000 from the first group, who have home loans with lenders that remain “active” in the mortgage market.

The FCA said that for the rest it would discuss possible solutions with relevant firms, consumer groups and the Government.

Source: Juice Brighton

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Lenders hike rates in response to the rising cost of funds

Mortgage lenders including Santander and Halifax have increased rates in reaction to the rising cost of funding.

Halifax and Santander hiked their rates this week, as detailed in notifications sent to mortgage intermediaries.

Other lenders putting up rates include HSBC, TSB, Barclays, Fleet and Family Building Society.

Henry Woodcock, principal mortgage consultant at IRESS, said: “Swap rates have started to rise, recently by 15 basis points in a month, increasing costs to lenders.

“It is inevitable these costs will be passed on to the consumer.

“As the Bank of England has talked about interest rates rising sooner rather than later and more than once in the year, the pressure on swap rates is likely to increase – forcing lenders to pull some of their most competitive deals.”

Santander has notified brokers that from today it will increase rates on 2 and 5-year fixes, including Help to Buy products, by between 0.04% and 0.10%.

It will also raise some 5-year fixed rate product fees by between £500 and £900.

However Santander has cut trackers by between 0.15% and 0.30%.

Halifax yesterday raised rates by up to 0.20% on 2-year fixed rate homemover products at 90% and 95% loan-to-value.

It also increased 2-year fixed rate affordable housing, shared equity/shared ownership products at 90% LTV.

And it has raised 95% first-time buyer rates at 95% LTV by 0.19%.

Family Building Society is raising rates by between 0.10% and 0.35% across its owner occupier and buy-to-let ranges – although applications at the previous rate will be accepted until 6 March.

Rob Ashley-Roche, principal of Rest Assured Mortgages, said: “What generally seems to be happening is lenders are making 90% and 95% loan-to-value stuff more attractive.

“They’ve got more appetite, unlike a few years ago when high loan-to-value rates were really high and 60% were really low.”

Alan Ward, chairman of the Residential Landlords Association, reckoned buy-to-let landlords will be able to cope with the rate increases for now.

He said: “There is sufficient choice in the market for the increases not to be significant at this stage.

“It’s important to note that it’s not just about rates – it’s about the cost of fees and legals.”

Source: Mortgage Introducer