Rarely in the world of finance can the vocabulary used to describe providers or products be described as exciting. Too often it’s a jungle of jargon and acronyms but ‘Challenger Bank’ is the term used to describe young, small banks created with the aim of challenging the more established brands.
Challenger Banks, are they challenging?
We have recently seen reports in the media that one of these banks, Metro, has been having some difficulties and today, (Metro Bank raises £375m in new funds to bolster finances) another relatively young bank in the UK, Tesco Bank, has decided to withdraw from mortgage lending describing ‘challenging conditions’ as the reason.
So what do they mean by ‘challenging conditions’? Well the current UK mortgage market is dominated by low interest rates which are great for borrowers but not so great for lenders needing profits and profit is not necessarily a dirty word. An absence of profit means that costs are only being covered. When costs are only being covered there is nothing left to invest to improve. Without this a business becomes stagnant and a stagnant business is a business in danger. Additionally, the property market in general has been, and continues to be, one with lower transaction numbers (by that I means property sales) than historic levels. Seemingly gone are the normal ups and downs of the year when people looked to move in the Spring or at the end of summer in readiness for Christmas. While I am not asking for sympathy for the banks, give a thought for the poor person whose job it is to try and predict the end of this quiet market with an unresolved Brexit, ongoing economic uncertainty, a growing global trade war and climate change all linked to how we spend our money!
With the Challenger Banks feeling the pinch as much as the established lenders, the future relationship that you will have with the companies that provide you with the finance you need has never been more important. When it comes to advising on the right mortgage, the right mortgage lender both now and in the future is as much a factor as the best interest rate, therefore an understanding of your plans and goals is key to ensuring that you borrow from the right source for your circumstances, whether it be one of the old guard on the high street or a new lender keen to show what they can do for you.
Your home maybe repossessed if you do not keep up repayment on your mortgage.
If you found this post about Challenger Banks helpful you might like this one – Understanding your budget