Acquisitions by Specialist Lenders
In the latest developments, acquisitions by specialist lenders, Shawbrook’s recent purchase of Bluestone and Barclays’ acquisition of Kensington earlier this month have set the wheels of consolidation in the specialist market. Brokers are anticipating an acceleration of this consolidation trend in the coming times.
As financial institutions strategically expand their portfolios through acquisitions, the specialist market’s landscape is poised for dynamic shifts. Shawbrook and Barclays’ recent actions underscore a broader industry movement towards integration and expansion, suggesting a compelling trajectory for the future.
Earlier this week, an agreement was formalised as Shawbrook Bank successfully secured the acquisition of Bluestone Mortgages, a specialist mortgage lender.
With its complete ownership of The Mortgage Lender in 2021, coupled with a robust capital base and established presence in the deposits market, Shawbrook Bank anticipates being exceptionally positioned to address the increasing demand for specialised lending.
This development closely follows Barclays’ recent completion of the acquisition of Kensington Mortgages earlier in the month. Industry experts predict that such buyouts will not only strengthen the offerings of the acquired specialist lenders but also mark the initiation of mainstream financial institutions diversifying into previously untapped markets.
Liz Syms, the CEO of Connect for Intermediaries, highlighted the growing trend of specialist lender acquisitions, citing instances like OSB and Precise and the 80% share acquisition of Molo by Australian-based ColCap earlier this year. She emphasised the increasing prevalence of such acquisitions and anticipated a continued trend in the foreseeable future. As the financial landscape evolves, these strategic moves are likely to reshape the competitive dynamics of the lending sector.
Acquisitions by Specialist Lenders | Tough market for specialist lenders
Specialist lenders grapple with funding obstacles in the current economic climate, navigating a challenging landscape. According to Syms, the market is proving resilient, but not without its share of difficulties. Economic uncertainties have exacerbated funding challenges for some, making it a rigorous environment for these niche lenders.
The Specialist Lending Event in February shed light on the pervasive funding difficulties across the board. Non-bank lenders, in particular, have been compelled to adapt by diversifying their funding sources. What was once one or two streams of funds has now transformed into 16 or 18 streams in certain instances, each dedicated to a specific type of lending.
The speakers emphasised the dwindling accessibility of securitisation markets, describing them as becoming “less and less available.” However, there is a glimmer of relief as the situation gradually improves. Despite these challenges, Syms pointed out that certain lenders are tackling funding issues by temporarily increasing rates, effectively pricing themselves out of the market for a period.
In some cases, lenders are choosing to withdraw, with some doing so permanently, as seen in the case of Masthaven. Syms suggested that having a larger parent company providing funding stability could be a positive development for advisers and their clients. However, she expressed concern about the potential loss of identity for specialist lenders that undergo acquisitions.
Expressing her sentiments, Syms noted that the unique value of these lenders lies in the distinctive criteria they bring to the market, catering to a different segment from their new parent. While acknowledging the attractiveness of specialisations to acquiring banks, she hopes that the acquiring institutions will leverage these differences to expand their offerings and enhance profit margins.
In her view, with more secure funding lines, such collaborations should ideally result in a mutually beneficial outcome for all parties involved.
Acquisitions by Specialist Lenders | A buyer’s market for specialist lenders
A current trend in the realm of specialist lenders indicates a shift towards a ‘buyers’ market.‘ Some observers suggest that non-bank lenders attempting to transition into banks as a solution to funding challenges may encounter heightened difficulties compared to the past.
According to an undisclosed source within the lending sector, who opted to maintain anonymity, the regulatory landscape appears to be more stringent now. The source shared a personal perspective: “From my vantage point, the regulatory body has issued numerous licenses. While some ventures have succeeded, others have faced challenges. The overall process seems to have become considerably more challenging than six or seven years ago.”
Anticipating a dynamic shift, the source commented that the current year might witness a more pronounced “buyers’ market” than preceding years. They speculated on the likelihood of increasing non-bank lenders pursuing the banking route by obtaining licenses or through integration with existing banks. This forecast reflects the evolving landscape of financial institutions and their strategic decisions in response to regulatory changes.
Acquisitions by Specialist Lenders |Consolidation shape of things to come
Lewis Shaw, owner and mortgage broker at Riverside Mortgages, has expressed a forward-looking perspective, suggesting that the ongoing consolidation trend in the specialist lending sector might indicate the future landscape. Shaw emphasised the potential benefits of this consolidation, citing a reduction in trading costs and an increase in profitability, especially in the face of significant economic challenges.
Lewis Shaw optimistically speculated that this shift could ensure continued service for borrowers with intricate financial circumstances, noting that this demographic is poised for substantial
growth. Given their longstanding partnership, Justin Moy, the managing director at EHF Mortgages, viewed the recent acquisition of Bluestone Mortgages by Shawbrook as a mutually beneficial move. He anticipated the preservation of the Bluestone brand in the short term and highlighted the strategic integration of Bluestone’s IT systems and processes into Shawbrook’s operations.
Justin Moy identified specialist mortgage lending as a highly lucrative sector with considerable growth potential in the coming years. He emphasised the increasing demand for flexible underwriting to support business owners, individuals with complex incomes, and credit-impaired borrowers.
According to Amit Patel, an adviser at Trinity Finance, 2023 is expected to witness continued growth in specialist lending, characterising it as a remarkably profitable sector.
Amit Patel attributed the recent wave of consolidation to lenders’ endeavours to diversify their product offerings and cater to the evolving needs of this niche market. He hinted at the possibility of additional announcements from other lenders as they vie for a share of the expanding market. As the industry transforms, consolidation seems to pave the way for a dynamic and competitive landscape in specialist lending.
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