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Do you expect to see less or more second charge mortgage lenders in 2018?

Brightstar: Opening the door to opportunity - challenger banks

Brightstar: Opening the door to opportunity - challenger banks

Challenger banks and specialist lenders had a strong 2015 in which, according to research from the Council of Mortgage Lenders, they grew their gross lending by 56%.

However, many challenger banks were hit hard when Britain’s bank shares were affected by the Brexit vote, and challenger banks have argued that they still face steeper capital requirements than larger lenders.

In light of this, the Bank of England and the Prudential Regulation Authority (PRA) realised that they need to help tackle the root causes of poor competition in the market, including taxation and capital requirements. As a result, the Bank is reportedly considering easing regulatory accountabilities on smaller lenders to ensure a “one size fits all” approach to banking regulation is finally abolished. 

A growing optimism

Without a far-reaching approach, some of the smaller challenger banks could be restricted to a much narrower part of the market, so this move to ease the compliance accountabilities should help to ensure that challenger banks have a fair chance of taking a larger share of lending.

Following a period of sustainable rate reductions, and as an increasing number of new entrants continue to be attracted to the market, it is clear that there is a strong and growing appetite for specialist lending. In fact, unsurprisingly, some lenders in the specialist sector are even looking to re-engineer their proposition by stepping into the growing specialist buy-to-let and residential spaces.

Therefore, this move by the Bank to help level the playing field could mean that the challenger banks sector is increasingly preferred, compared to the large-cap domestic UK banks. In my opinion, during a period of economic and political change and uncertainty, it is promising to see that the Bank and the PRA are taking steps to ensure a fairer and more holistic approach is taken.

Competing on an equal footing

Without a more balanced view and approach, it is possible that some of the smaller challenger banks will get left behind. Creating a fairer and more proportionate playing field for banks is the next natural step towards a stronger and more competitive market. In other words, it is time to give challengers a fair chance and to increase competition among banks. This is clearly an important issue and one that really matters, particularly if the industry is to have viable challenger banks and growing new entrants to the market.

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