In the mortgage market, discussions on innovation typically revolve around product enhancements and user technology.
However, the less visible aspects of mortgage innovation, such as mortgage sourcing, underwriting methodologies, mortgage servicing, and funding models, hold immense potential for substantial gains.
The evolution of mortgage funding has progressed from traditional balance sheet-based lending to securitization models and now, marketplace funding. Landbay has adopted a marketplace funding model coined “Mortgages-as-a-Service” (MaaS), which allows for a more streamlined and efficient approach to mortgage investment for financial institutions.
MaaS involves partnering with multiple institutional investors, who provide the capital to fund mortgages. In return, these investors leverage the expertise and experience of Landbay’s credit and operational teams to originate, underwrite, and service prime UK buy-to-let mortgages, ultimately providing the investors with the resultant returns.
Financial institutions seeking mortgage investment opportunities have three primary options: compete, buy, or partner. Traditional methods involve either setting up a lending operation, which requires significant investment and time, or buying a mortgage book, which necessitates extensive due diligence and is often a one-time transaction. The third option, partnering with a lender through a forward flow agreement, offers institutions the benefits of mortgage origination without the substantial costs associated with the first two methods.
Landbay’s MaaS model allows banks and institutional investors to deploy funds into mortgages by implementing forward flow agreements tailored to their specific product requirements and returns. By partnering with Landbay, institutions can capitalize on Landbay’s technology, established brand, and comprehensive market coverage, all at a fraction of the cost of traditional methods.
MaaS enables institutional investors to define their desired risk and return parameters, with products allocated to funders that align with their criteria. This benefits both investors and borrowers, as a diverse pool of investors on the lender’s platform leads to an expanded product range catering to various niche markets, such as buy-to-let mortgages for limited company borrowers.
By working with a MaaS provider like Landbay, brokers and borrowers gain access to the capital and risk appetite of multiple banks and funds, rather than being limited to a single lender. This flexibility is particularly advantageous in the growing buy-to-let mortgage market, which has seen a compound annual growth rate of 6% since 2014 and currently has outstanding loans totalling approximately £300 billion.
The majority of this growth stems from the professional buy-to-let segment, encompassing special purpose vehicles, portfolio landlords, and those focused on houses in multiple occupation (HMO) and multi-unit freehold blocks (MUFB). Buy-to-let mortgages present an attractive asset class for institutional funding partners, as they offer higher returns and stronger performance compared to owner-occupied mortgage lending, as well as countercyclical investment opportunities.
The MaaS model provides a practical solution for institutions seeking exposure in the buy-to-let market, where building market share and generating volume traditionally require significant investments. By adopting the partnership-based MaaS model, funding partners can unlock the hidden potential of Landbay’s innovative approach, ultimately benefiting partners, borrowers, and the market as a whole.
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