The 2015 Specialist Lending Market – no borrower left behind? Chris Bramham Director – Head of Specialist Mortgages

A typical specialist borrower!

A true specialist borrower! “Rejection doesn’t mean your aren't good enough; it means the other person FAILED to notice what YOU HAVE TO OFFER”

Self-employed – The facts! 4.6 million self-employed people in the UK 15% of the UK work force Self-employed highest point for over 40 years Rise in employment since 2008 predominantly self-employed Almost 500,000 self-employed over age 65 Number of women in self-employment increasing faster than men Only 5% of self-employed surveyed believed they could get a mortgage Self-employed borrowers are treated more harshly than employed

BTL – The Facts BTL lending up almost 20% YTD March 2015 18% of housing stock in in the Private Rented Sector Over 12% of total advances in UK mortgages were BTL One lender reports over 65% of BTL borrowers were self-employed in 2014 Rental yields diminishing in self-employment Changes to tax laws in 2017 will see an increase in SPVs Over 1,000 schemes available Aug 2015 up from 681 in Aug 2014 Impact of MCD in March 2016 – consumer BTL

Prime or Complex Prime – The Facts! 26% of all mortgage applications declined because of adverse credit Specialist lending market up 425% since 2009 to £17billion in 2014 209,000 CCJs per quarter in 2014/2015 10% of adults had CCJs in 2014 In 2012 over 18% of borrowers had missed payments of some sorts Jan 2015 - £1.36bn paid on credit card to HMRC Jan 2005 - this was £2m Over 99,000 personal insolvencies per qtr in 2014/15

‘AMPD closes due to lack of appetite to lend’ The ‘Pariah’ Packager Money Marketing - January 2012 ‘MMR may sound the death knell for packagers’ ‘Old-fashioned packagers are dead’ Mortgage Strategy – April 2007 Michael Bolton – June 2006 ‘Packagers would crawl back under the stone from which it crawled out from” ‘AMPD closes due to lack of appetite to lend’ Mortgage Solutions – August 2011

Fiction vs Fact – Mortgage availability to the masses Mortgages can be completed for those up to 85 “I’m too old to get a mortgage” LTV up to 90% for self-employed “I’m self-employed and no-one will give me a mortgage Specialist lending is on the rise with more lenders launching “Banks are just not lending anymore” No second charge lender requires upfront fees and rates start at 4.85% “Mortgage lenders charge high upfront fees” There are schemes from prime to heavy adverse Mortgages up to 70% for those declared bankrupt within 3 years “I have adverse credit, no-one will lend to me” “I was declared bankrupt, I have no chance”

Why has the specialist lending community grown post crash? FACT Prime mortgage lenders generally only want ‘vanilla’ clients FACT High Street banks are not lending enough to SMEs to keep up with demand FACT The specialist lending market is almost entirely intermediary lead FACT Market demands more specialist products to do the job

How do we improve the specialist referral process? “I don’t understand it” “Too complicated” “Not worth it” “Reputational damage” “It’s a compliance risk isn’t it?” “84% of respondents did not understand the specialist market enough to feel confident in giving the right advice to clients without expert guidance” Brightstar – Intermediary Survey Jan 2015 “Already earning enough” “More hassle than it’s worth” “I don’t have enough time” “Don’t want to deal with packagers” “Too many options”

Why has the specialist lending community grown post crash? Specialist lending – the intermediary ‘Cash Cow’ Network Information Average Proc Fee £522 Average Protection Fee £562 Average GI £145 Average proc fee paid to introducers in 2014 by Brightstar Mortgages & BTL £880 Second Charge £1,555 Bridging Finance £2,375 Commercial Finance £2,994

   

Why has the specialist lending community grown post crash? The rise of a specialist distributor: +45% +58% +214% +179% Source: Brightstar Financial Limited

What is the Specialist Market? Specialist mortgages and Buy to Let Second charge loans (secured) Bridging finance Commercial finance Development finance

Second Charges After March 21 2016 a second charge is a mortgage – MCD £800m per annum up from £672m in 2014 Average loan approx. £60,000 Will need full credit broking permissions to trade Hand off vs authorisation

Bridging Finance Up 30% from June 2014 to June 2015 Annual gross lending £2.88bllion Typical loan sizes up 12.6% Average loan in excess of £700,000 Regulated v unregulated Advice v no advice

Commercial Finance Commercial mortgage market up 55% to £3.5bn Increase in lenders from 45 in recession to 128 in 2015 Specialist knowledge essential Hand off v advice?

Specialist Mortgages & BTL How do we improve the specialist referral process? Bridging & Commercial Second Charge Loans Specialist Mortgages & BTL

Typical Scenarios Older borrowers Adverse credit Semi and full commercial – flats above shops Bridge to get a new property where one unsold Second charge for capital raising – tax bill Unusual properties Specialist BTL – HMO/Student lets Price for risk Multi million pound development finance Expat BTL

Liz Harris – Brightstar Compliance Manager Can we place every case? Could we in 2007? NO Can we today? NO Will we be able to in 2017? NO 4 Should we be able to? NO “Doing the right thing for consumers at every stage in the customer journey. This includes asking should we do this, not can we do this” Liz Harris – Brightstar Compliance Manager

In Summary The Specialist lending market is where the growth in the intermediary market is likely to come from Significant growth in appetite from new entrants to the market – Pepper, Foundation, Bluestone, Axis, Fleet The community still needs to improve knowledge and position of offering We cannot and should not attempt to help every consumer

THANK YOU & QUESTIONS