Underserved customer segments still an issue in UK mortgage market

The global financial crisis had a material impact on mortgage lenders who were - and still are - constrained in undertaking many of their historic lending services. Large lenders are now focused on simplicity of propositions, streamlined underwriting, protecting depositors and rebuilding capital, replacing legacy technology and slowly attempting to rebuild customer trust.

Three key elements, regulation, supply and demand, have helped create the current opportunity to provide mortgages for underserved customer segments of the UK market:

Regulation: The regulatory environment has developed since the financial crisis, creating a more stable market and a level playing field for lenders who want to do the right thing for customers. For example; the introduction of the Mortgage Market Review (MMR) in April 2014 has resulted in more robust affordability checking, better transparency and more suitable advice, all of which leads to better customer outcomes. The Mortgage Credit Directive (MCD), introduced in March 2016, has embedded these points further and crucially brings Second Charge lending within the Mortgage Code of Business (MCOB) rules. This improvement in the regulatory environment, while supporting the delivery of good customer outcomes, has also raised the barrier to entry. Only experienced and suitably qualified management teams, with access to significant start-up capital, can build appropriate businesses and obtain the necessary permissions.

Supply: Supply to non-standard customers has dropped significantly for two reasons. Firstly, a significant proportion of non-bank lenders closed due to the global financial crisis and secondly, mainstream lenders have shifted their focus to the most straightforward customers.

Demand: Firstly, there is pent up demand from those borrowers no longer being served by mainstream or specialist lenders. Secondly, market demand is growing due to the increase in the proportion of borrowers with complex financial circumstances, who require specialist underwriting or products. Society has evolved in terms of working patterns and household formation and the needs of customers are changing. Specialist lenders like Vida Homeloans are addressing those changing needs.