Foundation Home Loans doubled its mortgage lending in 2018 to more than £400m and is aiming for a similar performance in 2019 despite the intense market competition.
The lender is seeking to expand its residential offering this year and believes there is room for it to grow its buy-to-let business as the landlord sector continues to become more specialised.
However, Foundation also warned that it could be a case of “survival of the fittest” in the highly competitive market where many lenders are attempting to grow volumes significantly.
Commercial director Andrew Ferguson (pictured) told Specialist Lending Solutions that 2018 had been a good year and it was seeking to build on that to reach around £600m to £700m lending this year.
“We completed on more than £400m of new lending in 2018, with a run rate of £500m going into 2019, so we have definitely seen significant growth,” he said.
“The vast majority of that lending in 2018 was buy to let, but we’re working to push on and develop our residential offering for 2019.”
Investing in processes
To help it hit those targets the lender spent much of last year consulting with brokers and other partners about how it could improve its proposition along with investing in and training staff.
This has led to changes within its sales team structure and the introduction of a business processing team which will allow underwriters to focus on underwriting with administration tasks taken on by others.
And the decision in principle (DIP) process has also been tweaked with a team calling brokers to fully understand any queries on cases as they are submitted.
“We spent a lot of time last year looking at ways we can improve our processes and customer journeys and we have made a lot of small changes during the year,” Ferguson continued.
“Those cumulative changes have led to a much more positive journey but much more importantly we’ve also got a lot of changes ready to be implemented.
“So there’s been a lot of effort invested in really upskilling our staff over the last six months or so and I’m sure that will start to add additional benefits this year,” he added.
Scruff of the neck
Foundation has been most prominent with its buy-to-let proposition so far, but it is now looking to take a big step forward in the residential market.
This was marked by the hiring of Steve Sandiford as residential director in January.
“Steve will really help us take our residential offering by the scruff of neck, his whole reason for being with us is to eat, live and breathe all aspects of the residential proposition,” Ferguson continued.
“There’s almost two goals within the residential proposition – short-term within the next six months, and then beyond that.
“The short-term strategy is to really grow broker awareness of us as a residential lender, build our underwriting expertise and how we process cases, and focus on our mainstream-misses campaign for clients who don’t quite meet the tick box high street approach.”
“Six months plus is about growing our proposition, where we’re considering things like Help to Buy, later life lending and two or three other areas of the market.
“Steve’s job is to liaise with our broker partners and formulate a strategy to take that forward,” he added.
Product innovation for BTL
So where does that leave Foundation’s buy-to-let (BTL) market aspirations?
Well, the expectation is for 2019 to deliver a similar sized market to 2018, somewhere in the £35bn range, but crucially, Ferguson believes the specialist part of the market will continue growing.
Foundation has targeted portfolio landlords and is in the process of launching streamlined background portfolio assessments over the next couple of months to improve the customer journey.
“We’re excited about product innovation this year,” Ferguson continued.
“An area we believe has a lot of growth potential for 2019 is within the short term let space, where landlords are looking to diversify their portfolio strategies.
“We launched our short-term let proposition last summer, that does not need an assured shorthold tenancy (AST) for landlords who want to use Airbnb or similar to earn greater yields than they typically would on an AST.
“Bridge-to-let is also becoming a lot more of a trend, particularly over last 12 months, and we’ve seen some innovation within the market.
“It’s a growing segment but we don’t have any imminent plans to launch anything in that space.”
Survival of the fittest
But all this of course takes place in the context of a highly competitive market which has already seen several lenders forced to leave the market over the last three months.
In some sectors it appears the lending appetite may even be exceeding the available customer demand as lenders make their intentions for growth clear.
But Ferguson is pretty clear on how it will play out: “I think it’s definitely survival of the fittest.
“We see new lenders come out which are very competitive on pricing to get attention, so price is a key lever.
“But it’s important for lenders to build up brand equity and trust through speed, certainty and knowledge.
“There has been a lot of price competition, but some more established lenders have been able to maintain strong margins too.
“And so we have invested heavily this year in process improvement and making the broker’s life easier.”
Positive air for specialist market
Despite this upheaval there is a generally positive air for the specialist market and Ferguson believes there is now a greater compliance risk from those advisers not willing or able to work in it.
“One of the biggest fears for compliance is brokers who are doing product transfers or individual buy to lets instead of limited company because they don’t have the confidence to be doing complex cases,” he said.
“They need to take a step back and give the right advice.”
And the lender, like many, is pursuing further technology advancements including working with several firms on already implementing its Application Programming Interface proposition and all the criteria sourcing systems where it sees “massive growth”.
“We’ve got very keen interest at board level about the opportunities that exist within technology, that’s really important as we future proof the business,” Ferguson concluded.
That is likely to be good advice for brokers as well.