Doug Hall, director of 3mc, on how specialist lending is fast becoming the new mainstream.
Doug Hall has seen many changes in the mortgage industry since starting his career at Midland Bank over three decades ago. The bank, now part of HSBC, was for many years a stalwart of the high street, not to mention one of the UK’s main mortgage lenders.
In the intervening three decades Mr Hall has been at the forefront of some of those changes, not least the increase in the amount of business written by specialist lenders and packagers. “After working for Midland Bank, I joined Britannia Building Society as a branch manager.”
And after 12 years Mr Hall went to work for Britannia’s specialist lender Verso. This was followed by a move in 2000 to 3mc where he is now a director. “The business [3mc] originally started 22 years ago and has been through many changes, reflecting the nature of the industry we are in.”
3mc assists mortgage intermediaries with its expertise in the specialist market, finding mortgages for those who don’t fit traditional lending criteria. “We specialise in first charge mortgages for both the Buy to Let sector and the residential sector. Specialist mortgages are our mainstream which dovetails nicely with our intermediary customers as mainstream mortgages are their specialism. Sounds corny but it’s true.”
Mr Hall believes the BTL market has yet to find its new norm because a raft of changes have to make their impact known. Changes he believes that may take a few years to play out.
“According to UK Finance in 2016 gross lending was £40bn, last year it was £35bn. This year I think we are looking at £32bn with specialist lenders taking a greater market share.”
While overall BTL lending may continue to fall, Mr Hall predicts that specialist investors, such as those with limited companies, will account for more business.
The changes impacting business levels include tax changes which started being phased in, in April 2017 and which will be in force by the 2020/21 tax year. They mean individual landlords will only be able to claim back relief at the basic rate of 20% rather than the higher tax rates of 40% or 45%.
Other significant changes that are expected to affect BTL include the introduction of the EPC – Energy Performance Certificate. “This only came in on 1 April.”
Then there are the PRA portfolio lending changes which only came in last October.
“I was on a panel recently and was asked about the impact of Section 24 and the changes implemented by the Prudential Regulatory Authority. My reply was, these changes have not made themselves felt yet.”
Longer term Mr Hall believes that as landlords attempt to find their new norm, lenders will fall into three categories. This polarisation will result in lenders that support landlords, ones that say they can but in reality, they don’t and ones that simply won’t support landlords.
“I liken the BTL market to a monopoly board. Pre October 2017 and the PRA changes, lenders were only worried about the client and the security, now post 1st October they have to worry about the portfolio before addressing the security and the client.
“With some lenders you have to throw a double six or double seven to even get on the board in the first place. There is no doubt the market is going to become more specialist.
“And then there are the pending rules affecting landlords with houses of multiple occupancy (HMO).
“The good news is that lenders who do adapt and who are prepared to look beyond the tick box approach will thrive.
“Last year we processed £2.3bn of specialist enquiries, the appetite is still there and continues to remain strong in the specialist sector.
“We have a number of lenders who will now take one year’s books on a self-employed residential mortgage, rather than three for example.
“We also have residential lenders who will take a broader look at self-employment. For example, directors who are a 100% shareholder and only draw 50% as personal income. We have lenders on panel who will consider using all of the retained profits which can assist the overall affordability when compared to those lenders working from personal drawings only.
“Those are the lenders who we want to work with. The ones for whom specialisation is mainstream.”