Harpenden Building Society’s move into expat mortgages this summer has been good news for brokers and borrowers. But I think its importance goes beyond the extra products now sitting on sourcing systems.
There simply aren’t that many lenders targeting the expat segment. So, when another lender enters, it can have a big impact – particularly on a relatively small sub-set of the market.
Take expat buy-to-let. Another credible lender could conceivably increase the number of lenders serving the market by 2%t. There are probably even fewer lenders competing in residential expat lending, so another serious entrant could have an even greater effect there.
For brokers, that means more choice when placing a case and more effort from BDMs and better service levels. For borrowers, it means another potential route to a mortgage when their circumstances do not fit the standard high street model.
It’s worked before. Family Building Society has been offering a substantial expat proposition for years. Suffolk Building Society has residential, buy-to-let, holiday let – even self-build options for expats. Dudley Building Society has also built expat lending into its wider specialist proposition.
And we have seen the same approach in adjacent specialist markets. Nottingham Building Society launched a proposition for foreign nationals and returning expats and reported more than 1,500 applications in its first year. It has since expanded the proposition. West Bromwich Building Society took a different route, using a pilot for foreign nationals to test the market before moving into a wider mortgage proposition.
That is exactly how specialist lending should work.
And a small mutual can shake up a market even if they don’t arrive with a high-street scale capacity from day one. From a broker’s point of view, there’s only so far capacity takes you actually. You want to work with a lender partner upon whom you can rely. Who wants to do deals.
Expat cases can involve multiple income sources, overseas earnings, different tax arrangements and unusual circumstances. A lender can have apparently generous criteria but still be difficult to use if the practical appetite is narrow or if the underwriting approach does not match the criteria. You need more than a product on a sourcing system.
There’s a distinction between a lender being able to accept a case in a technical theoretical sense – and a lender having genuine appetite for that business.
That is the big question for Harpenden. Are they going all in? Are they dipping their toes in the water? Have they identified a particular niche within the expat market that they’re looking to exploit? I don’t know yet.
My initial view is that Harpenden is taking their push into expat seriously. It has not just tried to put an “expat” label on an existing product. Its proposition covers residential, standard buy-to-let, limited company buy-to-let and holiday lets.
It accepts foreign income in relevant circumstances, covers more than 408 countries (including China – not everyone does) and offers loans of up to £2m on the current expat range. I think they might make a good fist of lending against interesting properties, grade II listings – that might well become their niche.
More importantly, this proposition sits within a lender that already has experience with complex cases. Harpenden is a pretty pragmatic lender. They are prepared to consider multiple income streams, bonus, commission, overtime, pension, rental and investment income. They have experience with unusual property types and more complicated borrower profiles.
That gives me some reason to believe their expat proposition is a natural extension of what they already do. This is not a mad departure. It’s not Lloyds saying they’re no longer going to do standard repayment mortgages but are now focusing on interest-only mortgages for self-employed former bankrupts, now earning in cryptocurrency, buying Grade II listed former pubs with thatched rooves…
There is a bigger point here, too. Building societies do not need to compete with the biggest banks on every mortgage. They don’t need to take on HSBC’s pricing if they’re dominating a niche. A mutual can enter a specialist market. They learn from the cases they receive. They hone their offer and develop their criteria.
Other lenders see evidence that there is a viable market and consider entering themselves. It can be a virtual circle.
That is why I think Harpenden’s move could be significant and why I suspect other mutuals will follow. We need more building societies to test these markets and develop propositions around borrowers who are not well served by mainstream lending. So I hope Harpenden makes it work.
Because if it does, the benefit will not just be more business for one lender. For brokers, more (credible) lenders means options when a client’s circumstances demand it.
