Have we learnt from the mistakes of history?

Are specialist lenders moving too far along the

risk curve and straying into irresponsible

lending?

An analysis of the market and products available

in 2007 compared to now.

Rob Jupp

Brightstar

Chief Executive Officer

Growth of the Mortgage Market

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Specialist Mortgage Lenders Total

Source: CML – MM8

Billi

on

Ste

rlin

g (

£_

Growth in non-Bank lenders

Source: CML

25

54

2005 2007

Risk Layering

Interest Only

Higher LTVs

Income Verification

Affordability

Adverse Credit

SPECIALIST SECTOR

2007

Adverse

Credit

YES

95%

High Income

Multiples

YES

6 x Joint

Income

No

Affordability

Check

YES

95%

Interest

Only

YES

95%

Self

Cert

YES

95%

Bankrupt &

less than 3

years

discharged

YES

85%

How close did we come? Examples of 2007 Specialist Lending Schemes

Would lend 95% LTV where no

income verification checks were

carried out despite the product

being described as ‘verified’

with regard to income

A product lending up to 85% LTV where

an applicant could have unlimited arrears

and CCJs and could be an ex-bankrupt

Would lend up to 85% LTV on BTL

mortgages, despite knowing that

applicants were not funding the

deposits (they would deny this)

Offered a product where

it would lend 95% LTV

secured and 30% LTV

unsecured, in effect

lending up to 125% LTV

Operated an affordability calculator

that allowed lending at up to 6x income

Risk Layering

Interest Only

Higher LTVs

Income Verification

Affordability

Adverse Credit

Risk Layering

NINJA

NO INCOME

NO JOB

NO ASSET

Mortgage Delinquency Rates – UK v US

Source: CML (UK) & US Federal Reserve (US)

0

2

4

6

8

10

12

14

Growth of the Mortgage Market

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Specialist Mortgage Lenders Total

Source: CML – MM8

Billi

on

Ste

rlin

g (

£_

Lending over the last 9 years – 2007 v 2009

£356.8bn

2007 2009

Total UK

Lending

Total

Specialist

Lending

Total 2nd

Charge

Lending£5.6bn

£63.2bn

£140.5bn

£0.26bn

£4.9bn

Down

60.62%

Down

92.25%

Down

95.36%

Source: FLA, CML, Bank of England

Lending over the last 9 years – 2009 v 2015

2009 2015

Total UK

Lending

Total

Specialist

Lending

Total 2nd

Charge

Lending

£140.5bn

£0.26bn

£4.9bn

£220.1bn

£0.95bn

£18.4bn

Up

56.65%

Up

275.51%

Up

265.38%

Source: FLA, CML, Bank of England

Lending over the last 9 years – 2007 v 2015

£356.8bn

2007 2015

Total UK

Lending

Total

Specialist

Lending

Total 2nd

Charge

Lending£5.6bn

£63.2bn

£220.1bn

£0.95bn

£18.4bn

Down

38.31%

Down

70.89%

Down

83.04%

Source: FLA, CML, Bank of England

Why?

1 Lack of liquidity

2 Lack of securitisation

3 Other more lucrative markets

4 Regulation – European Union & Domestic

5 Lack of confidence

6 General public believe the hype

Describe Specialist Lending in 2015

“Very much in it’s infancy”“Growing gradually in a stable &

unsubstantial way”

“Sector is in a

conservative, sensible

stage”

“If anything lending remains

too tight”

“Rightly obsessed about

good outcomes”

“Specialist lenders are not yet

moving too far along the risk

curve”

Describe specialist lending in 2015

in it’s infancy Growing, stable & unsubstantial

conservative, sensible

stage

lending remains too tight

obsessed about good

outcomes

not yet moving too far along the

risk curve”

SPECIALIST SECTOR

2016

95%

Self Cert

NO

No

Affordability

Check

NO

Adverse

Credit to 95%

LTV

NO

Highest LTV

85%

6 x

Joint Income

NO

Highest LTV

is 5 x joint

income

Interest only

to 95% LTV

NO

Upto 75% Min

equity £250k

Bankrupt to

85% LTV less

than 3 years

discharged

NO

Discharged for

more than 3 yrs

The Risks Now

1 Inconsistency over stress rates – 1% to 3%

2BTL – Non Bank lenders looking to capitalise

on non regulated environment - growing

3 Interest Only

4Other – non mainstream sector, Second

Charge Mortgages & Bridging Loans

Where are the main risks?

Summary

1Mortgage lending; pre recession was moving in

the wrong direction

2Despite this (helped by historically low interest

rates) UK mortgage delinquencies are still low

3Specialist lending sector is currently modest in

size and remains quite low risk

4We know where trigger points are and can

readily identify what market abuse looks like

Just a thought…

Recessions

1929 The Great Depression – (2 years)

1956 The 1956 Recession – (6 months)

1961 The 1961 Recession – (6 months)

1973 The Mid-1970s Recession – (2 years)

1980 Early 1980s Recession – (1 ½ years)

1990 Early 1990s Recession – (1 ½ years)

2008 The Great Recession – (1 ½ years)

???? ….

THANK YOU