Making waves

6 February 2012 | By Tessa Norman

It is a brave man who will take the helm of a new lender in a struggling market and a braver one still who, less than a year into the job, will launch the first 100% LTV mortgage since the financial crisis.

But Charles Haresnape, managing director of residential mortgages at Aldermore, is not one to shy away from a challenge. While he admits it hasn’t been easy gaining traction in the market as a new bank, he is confident that Aldermore has made a name for itself as a specialist lender for first-time buyers and buy-to-let investors. And he is keen to point out that it is still early days for the lender, which has plenty more to offer this year and beyond.

Aldermore launched as a mortgage lender in May 2010, offering residential mortgages up to 80% LTV and a suite of buy-to-let deals up to 75% LTV for experienced landlords. As a brand it originated only a year earlier, in May 2009 when private equity firm AnaCap Financial Partners bought and renamed Ruffler Bank.

This was the first time the Financial Services Authority had approved the sale of a British bank to a private equity company.

Ruffler, founded in 1969, offered retail deposits and finance to small and medium-sized businesses, and by March 31 2008 had a loan book of £56.8m and deposits of £55m. AnaCap merged Ruffler with Base Commercial Mortgages and Aldermore was born.

“More lenders were needed. Joining one that already had a foot in the market let me develop bold propositions”

In May 2009 industry stalwart Colin Snowdon, former chief executive of Merrill Lynch subsidiary Wave, was recruited to set up Aldermore’s mortgage arm. But just six months after Aldermore officially launched in November 2010, Snowdon quit following the bank’s decision to integrate its commercial and residential mortgage businesses. Snowdon argued that by becoming an integrated part of its parent bank, the mortgage arm failed to play to his strengths. Haresnape, from Skipton-owned Connells, replaced him.

The move raised a few eyebrows in the industry coming so soon after Aldermore’s launch, but Haresnape contends that it was merely a case of horses for courses.

“Snowdon’s forte is setting up new businesses and that’s exactly what he did,” he says. “He set up the systems, the staffing, the infrastructure. Once the business was ready to go I was brought in to take it to the next stage - to grow the volumes and get the distribution and marketing in place - which is where my expertise lies.”

an industry man

Haresnape’s CV certainly backs up this claim, including as it does an eight-year stint at the Royal Bank of Scotland during its period of extraordinary expansion.

Haresnape started his career on NatWest’s graduate management programme in 1979, which he joined following a BA in law at Manchester Polytechnic. After working his way up through the clerical ranks at NatWest, he joined the Co-operative Bank, first as a branch manager and then a regional lending manager, overseeing branch applications for mortgages and commercial loans. He joined Norwich and Peterborough Building Society as its commercial lending and banking controller in 1989, looking after its commercial mortgage book and current account.

“After N&P I began to specialise in residential mortgages and that took me to Nationwide,” Haresnape says. “As a senior executive I was responsible for acquiring mortgage portfolios, which gave me a good background in servicing as well as originating mortgages - and a taste of what it’s like to work for a bigger lender.”

From Nationwide, he went to RBS as director of mortgage sales in 1997, relocating to Edinburgh where he is still based at weekends, and works from Aldermore’s Cheshire office during the week.

There he was responsible for all RBS’ intermediary mortgage lending and when the bank acquired NatWest in 2000, for NatWest’s intermediary and branch sales too.

“It was fantastic working for RBS,” Haresnape says. “In its heyday it was growing fast and management wanted to expand all aspects of the business, including mortgages, which was great.

“When I joined, RBS was not renowned as a mortgage lender - it was a small Scottish bank. So we grew its lending considerably on the intermediary side and in the eight years I was there it went from making a small profit to billions per year.”

Haresnape says it was also an eye-opening experience to be part of the NatWest takeover.

“In its time it was a successful acquisition and both businesses grew from it, but fortunately for me I left before it all started to go wrong,” he says. “As has been well documented, it was just one big deal too many at the wrong time - it was a house of cards after that.”

After leaving RBS in 2005, Haresnape became managing director of intermediary mortgages at Bank of Scotland for two years, which he describes as another exciting period of high volume lending.

Again, he had a lucky escape and left HBOS before its collapse, joining Connells as mortgage services director in 2007.

“The experience of moving from a large lender to a brokerage helps me now because I can understand both perspectives,” he says. “At Connells I was responsible for lender panels and ensuring brokers had the right products and processes in place, which has given me a good insight into what brokers want and need.”

headline grabbing

Aldermore then approached Haresnape and he took over its mortgage arm in January 2011. What was it like carving out a space for a new lender in a market that is challenging to say the least?

“It was obviously difficult to gain a voice because we were quite small, but the positive thing is that brokers want new lenders,” he says. “They want choice and different products, and we offered that. It’s a credit to those who set up Aldermore that it already had an excellent funding line and its FSA licence when I joined, so we could come to the market with lots of confidence.

“I could see the market needed more lenders. Joining one that already had a foot in the market let me develop bold propositions.”

And the lender certainly made a splash in the market last year, making national headlines in September when it became the first lender to launch a 100% LTV mortgage since the financial crisis. Was it always his intention to target first-time buyers?

“Yes, we identified that market early on as one that was underserved,” says Haresnape. “The more we spoke to brokers, the more they talked about how parents were having to help their children get a deposit together. We were asked, initially by estate agents, what we could do to help bring customers without a 20% deposit into their branches, and we came up with the family guarantee mortgage.”

The product, which requires a parent to secure the loan amount above 75% LTV against their property, has been praised by some as innovative but criticised by others for its high rate of 6.48% for a three-year fix and potential to push borrowers into negative equity if house prices fall.

Haresnape says that while some criticism was inevitable, the overall response has been positive and given Aldermore lots of exposure.

“There will always be people who dismiss it as too risky purely because it is 100% LTV lending, but they usually haven’t looked into the product properly,” he says. “Once people realise this is a family commitment they think it is sensible and we got a lot of positive coverage of the product. We got national radio and television coverage which increased our brand awareness, both for consumers and brokers. This had a knock-on effect to other parts of our business, such as our savings division.”

bank of mum and dad

And Haresnape is keen to point out that the family guarantee mortgage is still a work in progress. He says the product launched last year was merely the lender’s first offering and that in the next few months it is planning to offer a savings version of the same deal.

Haresnape says that with this product, instead of taking a charge on the parent’s property, Aldermore will require the parent to deposit a sum of money into a savings account with it. They will receive interest on the money and when the LTV on the 100% loan falls below a certain level, estimated to be around 75%, they can take the cash out of the savings account.

“The details are still being finalised but we hope to launch it this quarter,” says Haresnape. “It will give parents looking to help their children another option, and as we are a savings business too, we have the systems in place to be able to offer this option.”

Haresnape is clearly passionate about the first-time buyer market, which he says partly stems from personal experience.

“The bank of mum and dad must be one of the biggest banks in the UK, but their options are limited,” he says. “I’m a bank of mum and dad myself, having helped my daughter out, so I know how it feels. That was before the family guarantee mortgage, so alternatives to simply handing over the cash would have been welcome.”

helping hand for landlords

But while Haresnape says Aldermore was delighted to be the first lender to launch a 100% LTV deal since the downturn, it has of course been busy in other areas too. It is gradually becoming a bigger player in the buy-to-let market, having eased its criteria last year and increased its maximum LTV from 75% to 80% last month.

Haresnape says he sees Aldermore largely as a mainstream buy-to-let lender, but one that has some nuances around its proposition.

“For example, we were one of the first to lend to first-time landlords and one of the first not to require minimum incomes for experienced landlords,” he says. “It’s things like these which differentiate us from the competition.” Like most market commentators, he believes the buy-to-let market will continue to grow for the foreseeable future, noting that it is healthy to see large lenders like Abbey for Intermediaries joining the sector. But he believes Barclays’ recent service problems could hold it back from being a major competitor in this market in the short term, as the issues have marked its card among brokers.

“I think Barclays should be a major competitor in the buy-to-let space, but unfortunately it has let itself down, more than once, on the service proposition,” Haresnape says.

“My impression is that brokers are disgruntled, because there was a big fanfare around its 75% LTV deals and then they were pulled. There’s nothing worse than that as an intermediary, because you can’t manage a customer’s expectations if you don’t know what the lender’s doing.”

This is clearly a man who knows the broker market well and his determination to get things right the first time is likely to stand him in good stead with intermediaries.

When asked whether Aldermore will look to increase the maximum LTV on its standard residential range above 80%, he emphasises that the lender doesn’t want to run before it can walk.

“We may increase the LTV at some point, but we’ve just hiked our LTV on buy-to-let, so we want to see how that goes first,” Haresnape says. “We are just trying to do a bit at a time, as we have to make sure that all our products work, that brokers understand them and can sell them.”

commercial decision

Similarly, Aldermore has no plans to move into emergent areas like bridging any time soon.

“We don’t see ourselves entering sectors such as bridging or second charge loans, because they’re just not big enough markets, even for a small lender,” he says. “Bridging is a crowded sector and I think there is a danger that if you move into areas like that you end up diluting your effort. We want to make a good job of what we’ve chosen to do, rather than trying to do everything at once.”

But one area where Aldermore is looking to do more this year is commercial lending. The bank has a commercial division which is separate to its residential arm, but Haresnape says it wants to make its commercial products more accessible to ordinary brokers.

“From speaking to residential brokers we are finding that they do come across commercial cases, such as clients with large buy-to-let portfolios, and at the moment they struggle to place those deals,” he says. “There has also been criticism in the past that commercial lending for residential brokers is too much hassle, so we want to make it as easy as possible for them to access our commercial division.”

Haresnape explains that Aldermore is developing an electronic portal for its commercial range to allow brokers to type a case straight into the system in the way they can for residential deals.

“We will be bringing that to market in the next three months and that will enable brokers to get an early decision on whether the case is likely to proceed and so whether it’s worth getting all the paperwork together,” he says.

“Only a few lenders offer this and if we can bring our commercial and residential propositions together for brokers, it will help them to do more business and improve client relationships.”

breaking into the big league

The bank’s other major ambition for 2012 is to increase its gross mortgage lending and climb its way up the Council of Mortgage Lenders’ lending table.

Aldermore made its first appearance in the table in 2010, just missing out on a top 20 spot with a 0.1% market share and £100m of lending. The 2011 ranking has yet to be published but Haresnape says the bank lent more than £350m last year and hopes to break into the top 15 lenders for 2012.

He says the firm plans to increase its gross lending by over 20% year-on-year as part of its business plan, and sees no barrier to achieving this despite the flat market.

“Of course the market as a whole is not going to go up by 20%, but we think we can because we’re growing from a small to a medium-sized business, and also because there are opportunities in the market we can exploit,” he says. “For instance, developing our family guarantee mortgage this year should give us a good share of the first-time buyer market.

“There’s no doubt we will be moving up the CML’s lending table and while a lot depends on what other players in the top 20 do, I would love to be in the top 15 this year - that would make a lot of sense for us.”

taking advantage of best buy tables

Haresnape’s bullishness partly stems from Aldermore’s funding strategy, which he says saves the bank from a lot of the capital and liquidity problems that are hitting other lenders hard.

“Our lending is funded by our savings division and we’re glad we chose to structure the business this way because the capital markets are so tough,” he explains. “The securitisation market is difficult, especially for small, specialised lenders, and there are no signs of it becoming any easier.

“Meanwhile capital and liquidity constraints are going to hold back a lot of lenders this year, as they may not be able to prioritise mortgages when deciding what to do with their capital.”

Haresnape says Aldermore has succeeded in the savings market despite tough competition by sourcing business entirely by internet and telephone to keep costs low.

“We want to make a good job of what we have chosen to do rather than trying to do everything at once”

“We also use the best buy tables unashamedly and that works well for us - we’re often first in the table and usually in the top three,” he says.

focussed on brokers

In addition, he believes that being an intermediary-only lender gives Aldermore an edge over some of its competitors.

“Another major challenge for big banks this year is the need to reassess the cost of providing a mortgage advice service in their branches,” Haresnape says.

He says the issue has been brought to the fore by the ban on non-advised sales in the final Mortgage Market Review paper, but argues that there has always been an inherent conflict between intermediary and direct sales at many high street lenders.

“I think some of the big banks will focus more on their direct channel this year, because they’re under pressure on costs,” Haresnape says. “If they need to improve efficiency and they’ve got mortgage advisers sat in hundreds of branches not delivering on volume they’ll have to look at how to get more from their branches.”

He argues that historically branch sales never deliver the volume that lenders expect and they always come back eventually to the intermediary market. Aldermore, Haresnape stresses, has no plans to go direct on mortgages.

“We’re happy with the intermediary market,” he says. “Brokers have more expertise in giving advice as it’s what they do all day long. We see our expertise as a lender, not as a mortgage adviser.”

With high street banks continuing to have their lending appetites curbed by capital constraints and economic woes, Haresnape argues there is an opportunity for smaller lenders to take a lead in some of the niche markets, such as high LTV lending.

But he denies that the big banks are pushing smaller lenders into risky areas.

“Nowadays, lenders will not go into an area that is too risky.” he says. “This is firstly because history shows that to do so is suicide, and secondly because the regulator has a close eye on all lenders. It is all about making a sensible return for the risk you’re taking, and taking advantage of gaps in the market created by other lenders.”

And it is this concept that he says lies at the heart of Aldermore’s strategy.

“We are looking to satisfy customers’ needs where they are not being met, but also to make a respectable profit. And my job is to balance those two things in the right way.”

 

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