Glenhawk aims to move into the specialist buy-to-let (BTL) space in the final quarter of this year, the lender has revealed in an interview with Mortgage Strategy.
In a wide-ranging discussion, chief executive Guy Harrington says the firm wanted to go after the extremely specialist end: “Complex cases – offshore ownership, trusts, multiple unit freehold blocks, discretionary trusts… really quite quirky BTL situations.”
He explains that in the regular BTL market, “the margins at the moment are almost non-existent. As we’ve seen in the last few weeks, there have been a few BTL lenders that have either withdrawn from the market completely or paused their lending.”
The type of borrower the lender would deal with would also fit the firm’s ethos, Harrington says. “We always want to be a specialist lender.
“We don’t have the cost of funds that a high street lender has. By [lending] at the specialist end we get the complex landlords, the complex borrowers, and they fit well within bridging, and within BTL, and they also fit well in commercial term,” he said.
“And commercial term is another area we’re exploring at the moment [that would be] another string to our bow away from the residential side of the mortgage market.”
Glenhawk director of sales Jamie Pritchard added that the business doesn’t want to be merely an “us too” lender. He says: “We are going to go into BTL and it would be nice to get across that we’ve given some real thought as to what the margins are like and how competitive that market is. We don’t want to be a clone of another lender, because really, what the point if you’re not offering anything special?”
Other plans for Glenhawk this year include expanding its regulated side and to utilise the opportunities that new FCA authorisation with provide. It expects to receive new permissions within the next three months. “This will allow us to do first- and second- charge homeowner loans, which will open us up to a whole different sector of the market – perhaps first-time buyers, specialist borrowers, and retirement interest-only,” says Harrington.
The discussion also touched on Glenhawk’s approach to environmental, social, and governance (ESG) issues, updating Mortgage Strategy on June 2021’s news that the lender had earned a ‘carbon neutral’ rating from the Carbon Trust.
Harrington says that his team “struck gold” in bringing in Daron Kularatnam from Belmont Green, who now works as group treasurer and ESG director.
“He has an incredible passion for the environment, for sustainability, and for carbon reduction,” Harrington says.
“Darren’s had the idea to look at the whole business – from people’s commutes to the paper we use in the office to the lighting to the water and heating… we really stripped everything apart and decided to offset where we are now and to complete future offsets as we grow.
Harrington says the work continued with the purchase of 1,000 trees via Ecologi to mark Earth Day, “and that’s just the start, really. We want to increase the number of trees we plant in accordance with the loans we make, not only offset what we have here, but go above that, which has been our ultimate goal.
“And we’ve been investing in projects such as providing cooking stoves to people in Kenya and water filtration systems in India. But that all comes through to the carbon offsetting piece. We’re not just going out and just buying trees.”
Both Pritchard and Harrington also say this is a growing issue for new and younger hires. “I’m sure I speak for a lot of the junior members of the team when I say they feel quite strongly about the environment and they feel an attachment to looking after it,” says Harrington.
He says he’s often asked what Glenhawk does for the environment and is asked to detail its ESG policy at the interview stage. “If somebody had said that to me coming for a job here a year and a half ago, I’d have thought that was a bit strange – why are they asking that? You’d expect an investment bank to ask it, or a funder, to tick a box, but the junior members of the team almost have a sense of ownership now to wanting to work somewhere that’s socially conscious,” he says.
Pritchard adds: “Post-lockdown, we’ve been really measuring how much mileage is being done by our staff. In the past, talking only for myself, I was driving 30,000 to 40,000 miles a year around the country, pretty inefficiently, as well. We’re trying to be more efficient with how we’re driving around the country and where we need to be. Using Teams and Zoom helps a lot, too.”
The two men have strong opinions on the current stage of ‘green’ mortgages, as well. Both are adamant that green concerns must be build into products at a foundational level. Speaking of green-tinged loans that offer a discount, Pritchard says: “I think these are similar to just planting a tree. If 60% of carbon is emitted through properties, then we need to offer something that changes the mindset for the landlords, not just saying ‘this is going to be better for your pocket.’ It needs to be more considered.
“The products should be ‘green’ in themselves,” Pritchard continues. “So whether that be linked to impending ESG changes for landlords or another angle, such as utilising the equity a borrower may have in their asset to fund improvements… there’s definite links between the products and the environment.
Harrington: “It’s about thinking bigger than a token offering. What’s a discount even doing? My view is you have completely fresh products, and within those you have the carbon reduction. This could be regulated homeowner self-builds, and for those achieving a certain EPC rating, they get a discount. Ultimately it comes down to the asset you’re lending on and not putting a little bow on it and calling it ESG-friendly when it’s clearly not.”
House prices in 2022
“Inflation is running, I think, far higher than what the media and the barometers are saying,” says Harrington.
“I think true inflation is probably 15%, maybe 20%. That’s going to bite. And if you look at the credit usage recently across second charges and consumer credit data, borrowing spiked in the last two months, which shows that people are borrowing to pay bills.”
The topic is, of course, expectations for house prices. Harrington believes that the factors detailed above will go some way towards softening house prices not this year, but in the first or second quarter of 2023.
Pritchard adds that the financial pressures resulting form energy price rises will mean that lots of people who planned to make their first step on to the housing ladder will have to rent instead.
“There will be a lot more squeeze on the ability to save for deposits,” he says. “Even on a 95% LTV mortgage, that 5% deposit amount is creeping up itself.”
Harrington points out, however, that, “before… it was looking as if rates in Q1 this year were going to keep rocketing up, and it sort of still looks like that, but recently we’ve started to see energy price pressures clearly, and also what’s come to the forefront in the last few days in China.
“The huge lockdowns going on over there [in Shanghai at the time of writing], make it likely that interest rate rises in the Western world will be tempered.
“So really, bizarrely, the UK housing market, which has always been relatively isolated, is being influenced by these huge macro decisions around the world.
“There’s really a lot of factors… and all it takes is one of those to run away and you may even see rates come back down again. But as we’ve seen in the last six months, nobody really seems to know in which direction we’re heading in.”
Whatever new chaos the world unleashes next, though, it is clear than Harrington and Pritchard are proud of their work. “We’ve got a formula that works and we do excellent volumes across unregulated and regulated bridging. Last month was our record month and I think this month will be higher,” Harrington reports.
“We’re seeing speculative developers, some really interesting auction purchases, repeat clients coming back… now our clients are used to how we operate, and we have the reputation of having been around for four years, that we’re not just a fly-by-night lender that started up four months ago with loads of cheap money.
“We’re starting to reap the rewards from the amount of time we’ve been around, and like any business we want to grow and accelerate into other product areas. This is the year that we’re going to do that.”