History shows that US companies have a poor record of showing commitment to the UK mortgage market. All too often they have appeared as enthusiastic entrants only to depart soon after, trailing a reputation for opportunism and an inability to understand our market. But can that be said of the current crop?It is important first to understand what attracts US companies to this country and second to identify the conditions necessary to maintain their interest. The attraction is largely provided by the dynamic specialist sector. It offers more attractive margins and better growth opportunities than its mainstream counterpart. Also, having undergone the process of becoming fully regulated, it has left behind reputational issues that helped persuade earlier players to make a premature exit. Having entered the sector, firms will anticipate a continuation of generally favourable conditions in which they can thrive. But the big question is what happens if the economy doesn’t perform as expected and the specialist area is the first to feel the chill of economic winter? It is here that we must draw a distinction between those US-owned businesses that are building a platform and infrastructure for a long term future, and those interested in achieving early realisation of their investment by selling up. Either represents a legitimate strategy that will help keep the sector vibrant – at least in the short term – but the latter group will be less well prepared if conditions deteriorate, and thus more likely to depart the scene. The good news is that economic doomsday seems to have been postponed so I anticipate our US friends sticking around for a while. But they still have to persuade a sometimes sceptical industry that they are not the fair weather friends of the past. It’s pretty obvious that the number of lenders providing specialist niche mortgages has increased over the past five years – probably tenfold. Traditionally this was an area catered for by self-cert, buy-to-let and sub-prime mortgages, but now we see the types of products in the sector becoming ever more sophisticated. We have seen the emergence of self build, ex-pat, current account and Islamic mortgages as well as various sub-prime offerings from light and near prime to heavy adverse. Many entrants into the specialist lending market have come from the mainstream sector such as Derbyshire, West Bromwich and Alliance & Leicester – but does a good mainstream lender make a decent specialist? These niche products have always attracted a higher margin but as competition hots up these margins are being eroded – though they are still better than mainstream products would attract. The benefits for brokers and consumers are obvious, with a better choice of rates and deals. And these niche areas will always remain part of the broker’s domain – places where expert help and guidance are needed to steer the client through the choices available. New entrants must look at this complicated and sophisticated market as a long term venture rather than as a place to make short term gains. This is something to bear in mind when you think about the number of entrants we have seen or heard rumoured to be looking at the specialist mortgage market. There’s no doubt we have not heard the end of these changes in the market – and that is without even mentioning changes taking place among brokers, packagers, networks and others on the distribution side.
US lenders geared up to stick with it through economic thick and thin are the ones most likely to be in the market for the long haul, say our experts