New Mortgage Lenders could shake up market

• Featured Articles
• Published: 26 Nov 2009 in Money and Mortgages

By Simon Read

There will be a new breed of mortgage lenders entering the market in 2010. Tesco, Sainsbury’s and Virgin are all expected to be stepping up their activities while more foreign banks are expected to make moves into the UK, following the successful introduction during 2009 of Bank of China as a mortgage lender.

It looks like the timing couldn’t be better. People are fed up with the high street, many blaming their excessive lending policies of the last few years as being a major contributor towards the credit crunch we’re all experiencing now.

Indeed, more people than ever are now looking for alternatives to the high street banks, according to business advisory firm Deloitte. Its research reveals that 51 per cent of people would consider moving. So people want new lenders, and more competition generally means good news for consumers. But will these new lenders bring better deals with them?

Will supermarkets win the trust of consumers as lenders?

The supermarkets have a major trump card – they are trusted brands with millions of customers. It’s not much of a leap to imagine borrowers happily paying off their mortgage at the checkout when they pay for their grocery shopping. But there are also the supermarket’s successful loyalty schemes which could be harnessed to encourage people to take a loan with them.

Indeed, Sainsbury’s has already gone down the road of linking financial products to reward schemes – it’s currently offering double Nectar reward points in its stores if customers take out a selected Sainsbury's Finance product.

“I have no doubt that over the medium to long term there will be a shift in the mortgage lending powerbase as a wave of new entrants come into the market, particularly the current supermarket mega-brands of Tesco and Sainsbury’s,” predicted Michael White, chief executive of online mortgage advisers, Email Mortgages.

Foreign banks have a role to play

More specialist lenders could come from the Far or Middle East countries, he said, following Bank of China’s successful launch this year. The Bank of China’s move was an interesting one. It’s a massive bank but barely heard of over here.

In fact most people won’t know that it has entered the mortgage market as it only sells deals through mortgage brokers. “The approach taken by the Bank of China has been very conservative,” said White.

In short, it has set itself as somewhat of a specialist lender, looking to offer deals to people who may want to borrow a bit more – say £500,000 or so – but are struggling to get a loan agreement at the high street. It’s a lucrative end of the market and others are bound to want a piece of that action, so you should expect other foreign names to appear in the specialist lenders’ list during the course of 2010.

Back in the mainstream, the launch of mortgage deals by the likes of Tesco, Sainsbury’s and Virgin may not come soon enough for some borrowers, warned White. “If you’re looking for mortgage finance then you are going to find it difficult to secure the best deals if you’re not Mr or Mrs Average with a full-time job, and a very clean credit score – plus a sizeable deposit/equity.”

Lenders expected to be more favourable to borrowers in 2010

However that could change in the New Year, he predicts. “As we enter 2010 the positioning of lending does seem to be shifting slightly as the expertise within the lenders recognises opportunities. Already some building societies, such as the Nationwide and Coventry, will lend up to 125 per cent to existing borrowers to facilitate a new home purchase. And, although for new borrowers a minimum 10 per cent deposit is required, the good news is that rates on the 90 per cent loans have been gradually easing in the past 6/7 weeks.”

In other words, there are better deals out there already, even before the new mortgage lenders have made their mark. They key is to shop around to get the best deal, looking at all factors – such as arrangement and setting up fees – as well as interest rates.

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