Cover Feature: Mindful mortgage lending

Leah Milner meets Fleet Mortgage’s head honchos to talk about the firm’s comeback and the similarities between today’s mortgage industry to an overconfident driver

It has been a dramatic year so far for Fleet Mortgages after the buy-to-let lender had to pull its entire product range in January while it looked for new financial backing.

The asset management groups providing Fleet’s funding lines effectively turned the tap off and it had to stop lending altogether for three months while it agreed a deal with new investors.

It must have been a nerve-racking time as chief executive Bob Young and the management team sought to reassure staff and brokers that the lender would be back in business before long.

Young’s 45 years’ experience of working in the housing market, having survived four recessions, will no doubt have boosted employees’ confidence during a difficult period for the firm. He held roles right across the sector, from property auctioneer to estate agent, before turning to the world of lending. Young’s understanding of what drives economic cycles, how to motivate people and be a strong leader is informed by his interest in psychology and, in particular, his training in neuro-linguistic programming – but more on that later. Meanwhile, distribution director Steve Cox has spent much of his career on the intermediary side of the industry, which helped him to forge relationships with Fleet’s broker partners and maintain these ties throughout the upheaval.

Fortunately for Fleet, new financial backers came on board relatively quickly and it was able to replicate the range of BTL products it offered before January. But managing staff and broker confidence in the interim was a challenge.

Young says: “All of a sudden, we had more than 90 people working with no money to lend. It was not a case of pricing the products to slow things down. We had no choice but to fully close. We had already been speaking to people who wanted to come in and lend money through us, but it was just a question of how quickly we could get the legal side sorted.

“Our guess was that we might lose up to a third of our staff, because people understandably get worried if they have got a mortgage to pay and a family to support. But we only lost two people. One had been offered a ton of money to work somewhere else and the other had already decided to leave before this happened.”

When it came to keeping brokers on side, Young says: “I think Steve’s experience as a distributor meant he had a lot of empathy with brokers and vice versa. He had already organised a strategic partners event for the top networks and introducers in February, which we thought about cancelling, but we decided to go ahead with it.

“We were very honest with them and said ‘here is where we are, we will keep you updated as we go through it all’.

“Originally we hoped to be back at the end of January. But one of our funders just could not get their act together quickly enough. But in the end, we got better terms with our new funder and that was reflected in our pricing and criteria.”

Young seems to have a loyal following among the staff at Fleet, which must have helped during the lender’s turbulent start to the year. Most of the management team and many other employers previously worked with him when he was at the helm of Capital Home Loans.

Young says: “When we set up Fleet Mortgages four-and-a-half years ago, almost all the directors were previously employed by Capital Home Loans. We have around 96 staff now and I would guess about 50 to 60 came from CHL, so we still have the culture that we created there.”

Challenging times

The team has already experienced the highs and lows of the cycle as they went through a similar period of uncertainty when CHL had to stop new lending in 2008 during the credit crisis. Young and the CHL team built up a £6bn mortgage book at the lender, which was originally owned by Irish Life and Permanent. He says: “It was one of the cleanest books possible. It was mainly BTL, but we did a bit of owner-occupied lending. We did do self-cert, but for the self-employed only. You had to have a qualified accountant’s confirmation of income.

“Whereas for some others it was a case of ‘tell me how much you earn and let me add a zero to it.’”

Of course, it was an incredibly challenging period, but Young says: “We had 280 staff and we had to go down to 110, so we lost a lot of very good people. However, I had to focus on the 110 people that we kept and their families. It would have been very easy for our Irish owners to just close the whole business down and sell the portfolio. Our strategy was to come up with a compelling reason for them to keep us. So we just ran the book more cheaply than anybody else could run it. I am immensely proud that during the recession we kept many people in work, but we also did a really good job with the portfolio.”

Before leaving to set up Fleet in 2014, Young and the other directors tried to agree a management buy-out of CHL from its owners – then Permanent TSB – with the aim of bringing the brand back to the market as an active lender.

“We got to the point where we had hit all the numbers and they kept changing their minds. We had private investors and we agreed all the terms, but then they changed their minds again.”

That is when Young and a number of his senior colleagues decided to launch Fleet Mortgages. Ex-CHL senior staff who remain on the Fleet board today include chief operating officer Keith Murrell, chief financial officer Sunny Lo, chief information officer Mike Lane, chief risk officer Jannie Vermeulen and chief legal and compliance officer Phillip Tebbatt, who was previously an adviser to CHL.

Steve Cox and Bob Young

An experienced team with a long memory is a valuable commodity in any field. In the mortgage market, Young likens the cycles he sees in understanding of risk to a concept he learned about through NLP training. He first became interested in the practice during the 1990s and, while he believes there are many useful tools NLP can offer, he believes the term became tarnished as it was misused by some salespeople so it became something of a pyramid selling scheme. Young studied NLP for years, including doing a course with the famous TV hypnotist and NLP practitioner Paul McKenna.

Applying NLP concepts to the mortgage industry, Young argues that the market moves through cycles from “conscious incompetence”, to “conscious competence” and then to “unconscious competence” before swinging back around to “unconscious incompetence” again.

He likens these phases to learning to drive: “The first time you get into a car with a clutch you limp around, consciously incompetent. You learn to drive a little and you are crunching the gears a bit. Then you move round to a period where you are consciously competent, when you take your driving test. You are looking in the mirror, you are doing everything right and you are fully engaged. When you have been driving for about a year, you become unconsciously competent. You know how to do it and you do not even think about it. But the trouble is external factors, the things around you, do not stay the same and that is why people have accidents. They do not realise that they have moved around to unconsciously incompetent again.”

Young argues that we have been “consciously competent” in the mortgage industry for some time since the crisis. “The FCA has made lenders and brokers be consciously competent. It has said ‘think about what you are doing, think about the customer and, by the way, we will sanction you if you do not.’ You could argue that we are moving into a period of being unconsciously competent. We are quite good at it, but we do not think about it too much and there will be an external break or event – something will happen which turns us into unconsciously incompetent again.”

Young is concerned about some of the practices currently re-emerging at the moment. “There is no innovation in the mortgage market. Everything is a rehash. When people say innovation, what they normally mean is cheaper with more risk. So lenders are saying they will do six times income – some will say that is innovative. I say, ‘no it is stupid.’”

Certainly in the BTL sector, brokers, lenders and landlords need to be flexible and alive to the shifting risks and regulations in order to thrive. This is where Cox hopes to help intermediaries in the coming years. He is one of the newer additions to Fleet’s team, having joined last November from Hodge Lifetime, where he was business development director. Prior to this, Cox was firmly in the intermediary camp, latterly as commercial director of Sesame Bankhall Group and, before that, at Spicerhaart and Millfield Partnership. Winding the clock back even further, Cox worked as a self-employed broker himself in the 1990s, so he understands the challenges facing small firms and is optimistic about their future.

“I think there is room for everybody. If you have a successful business model and you are delivering good advice, I think whether you choose to be an appointed representative, or remain directly authorised is a personal choice.”

Growth opportunities

In his role at Fleet, Cox plans to deliver more educational resources and to support for brokers and their landlord clients to find new opportunities in BTL following the significant changes in the sector.

“What I want to do is provide that support – irrespective of whether brokers are big, small, DA or AR – to show what are the opportunities in BTL. The market is evolving into more complex areas and that is what brokers’ customers will want, as opposed to previously, when they were dealing with many more ‘dinner party landlords’, ‘occasional landlords’ or whichever phrase you wish to use. Although we deal with individual landlords as well, the growth and opportunity is in the more complex sectors.”

Across Fleet’s own mortgage book, the average portfolio size of its landlord borrowers is 30 properties, he says.

These semi-professional landlords are increasingly looking to diversify their portfolios to encompass areas beyond London and the South East, as yields in the Midlands and the North West now considerably outperform those around the capital, Cox explains.

Many landlords are also looking to houses of multiple occupation for those higher yields and want a blend between capital growth and income across the different types of property they own.

Yet Cox says that Fleet wants to cater to both highly specialist BTL brokers and those who might only deal with a few complex cases each month, so getting the tone and approach right is key. His aim is to deliver support tailored to different levels of experience by participating in roadshows and producing helpful guides on different aspects of the sector.

“There are, of course, specialist brokers who do not need to be told where the opportunities are because it is what they do for a living, but perhaps for the wider adviser population they have not had huge exposure to the complex side of things yet and we want to arm them with the knowledge to help their customers see where the market is going.”

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