To better answer this question, it’s worthwhile to first understand how specialist lenders like Molo are funded and how the broader economic situation plays a part in this process.
How is Molo funded:
Generally, lenders can be split into 2 different categories - banks and specialist lenders:
- Bank lenders get their funds from customer deposits and in turn lend them out to other customers (as loans or mortgages) at a higher interest rate;
- Non-bank specialist lenders (such as Molo) on the other hand get their funds from capital markets (eg. from other financial institutions) in return for a fee which we pay to these institutions. This fee is called our “cost of funds”
As a non-bank specialist lender, we get our funds from capital markets in set portions (eg. buckets/ tranches of £250m etc). We then work to fill each bucket with lots of mortgages until it's full (ie. until we’ve maxed out the £250m as an example). Unfortunately, we’ve filled our current bucket and our new one isn’t ready to launch yet, so our Buy-to-let products will be closed until the next bucket is ready to go. We are anticipating this to be soon but currently cannot yet confirm a fixed date for this.
Why is this happening now?
You have likely seen in the headlines, the spiralling rise in inflation which has led to dramatic rises in energy, living and other consumer costs.
As a specialist lender, we have been impacted by the unprecedented increases in the cost of funding due to spiking inflation and Bank of England base rate rises since the start of the year. Rather than stabilising, these rises have only worsened dramatically over the past few weeks.
For context, the key costs we face are interest rate related. Our key benchmarks in this space have risen over 550% since this time last year (from April-20-2021 to April-20-2022).