Stuart Glendinning: I think the state of health of mortgage distribution is pretty good at the moment. We have a diverse market and there is plenty of choice for customers, no matter what their personal circumstances are. We have all manner of different distribution methods from professional advisers through to direct branches, tele-based sales, e-commerce and the internet.
Ray Boulger: I agree but what is going to be particularly interesting is to see what impact regulation has. Section 35 (whereby a person cannot be an appointed representative for one activity if they are authorised for another activity) is the area I can see being an issue for a lot of mortgage introducers.
Michael Bolton: Linked to that is CP121 which is obviously designed for the life side of the market. It is clearly going to have an impact on the mortgage market as well. All of a sudden single tying of mortgage distribution is on the agenda.
Ray Boulger: I think a lot of IFAs who specialise in mortgages will give serious thought as to whether they can remain IFAs.
Steve Scholes: I think you can easily envisage key players in the market having a big influence as opposed to the wider range that you have got now.
Ray Boulger: I think that could apply to the smaller and medium-sized lenders as well. They will have to look very carefully at how many people they want to deal with in light of statutory regulation. I do not think that would only apply to the big companies.
Alex Broad: What impact will continued consolidation have on distribution?
Simon Tyler: I think right now is the best the market is ever going to be. We have a booming market and the lowest interest rates in 40 years. Most businesses are performing well and this is possibly giving them a rather positive overview in a market that is no doubt going to shrink in the second part of the year. So not only will the amount of mortgages required drop at some stage, but people’s desire to take up mortgages will change when interest rates rise.
I think most intermediaries will just sit still and wait until the last possible moment to make their decision on depolarisation, be it multi-tie, single-tie or getting out of the industry all together. But what it will do is focus advisers’ minds on specialising in particular fields. People cannot claim and continue to claim to be experts at everything. The term ‘jack of all trades, master of none’ really does apply to a lot of people in the financial services world.
Stuart Glendinning: I do not think it is just going to be intermediaries who have to specialise, I think lenders also have to ‘ there are too many out there that do not have a sense of purpose. One of the disappointing aspects of regulation is that it is going to force consolidation. We will end up with super intermediaries that dominate the market. I can also see greater partnerships like that of Sainsbury’s, which now sell Boots products in its stores. You might have organisations that, in the future, will want to have the Charcol brand within their proposition.
Steve Scholes: If you move that idea forward to product development we will get to a stage where products are fully flexible and no further development is possible. This will mean the market will slow down and you will not get people churning their product type, only the price.
Michael Bolton: The reason why, in that time-honoured phrase, ‘the market never had it so good’ is because it has been unregulated for the last 15 years. There is the Mortgage Code ‘ which is useful, but it has clearly had zero impact. We have not had the shake-out you would see under a statutory regime. As a consequence, we could see fewer lenders and the emergence of super intermediaries. Whether that ultimately is a bad thing for the market, time will tell. From a lender’s point of view, our game is all about maximising margin at the cheapest possible acquisition cost.
Jonathon Whiteley:Are changes to mortgage distribution going to principally affect small brokers?
Ray Boulger: Regulation is going to put small operators under huge pressure as it did with the original introduction of the FSA. People who dabbled in mortgages will no longer do so because they cannot afford to take the risk of giving poor advice. There are advisers that only arrange one mortgage a month so it is likely that with the huge amount of information now available, borrowers are going to know more about their specific requirements than the brokers. As a result, if you are a one-man band who dabbles, you won’t, you will stick with what you know and are good at and refer clients on to other advisers for specialist services.
Alex Broad: Does anyone disagree?
Simon Tyler: I think more and more people will refer. You have got to keep your knowledge up, you have got to keep your experience up, and I don’t think you can do that without doing the job. As an example, you would not want to see your doctor if they only saw one patient a month.
Michael Bolton: So you think three out of four in the market are going to be referring for £50 per referral after 2004, while the other one in four is earning?
Simon Tyler: I think you will see 15% to 20% of people drop out in some form or other by not doing it themselves or referring to somebody else. We must remember most people in our industry spend over 80% of their time looking for business ‘ you have to be a very confident individual and very mature in your business to be able to say ‘I can’t do that for you.’ At the moment it may only be one mortgage a month, but if one mortgage a month is earning the broker £12,000 a year then that is a significant amount of money to wave goodbye to.
Jonathon Whiteley: What does this mean for the mortgage clubs?
Ray Boulger: They will need to offer more in terms of compliance help than they are now. At the moment they are just a shop window for exclusives and offer a way of getting higher procuration fees. They are not offering the client support needed and I think if they do not do that in the future then they are going to have problems ‘ it will be an interesting one to watch.
Simon Tyler: But if they do that it will cost them. At the moment they are just about making money as a distribution service. The moment they start taking any responsibility, they are going to have to pay for that, as well as the consequences of getting it wrong.
Stuart Glendinning: Brokers are going to have to pay more under regulation and that will force them to join up with networks. The negative aspect of regulation is that it empowers certain organisations. Why that is good for consumers is not at all clear to me.
Alex Broad: Are the clubs likely to take more business if they get a handle on providing the compliance solution?
Michael Bolton: From a lender’s point of view there is an argument that says ‘I would much rather deal with a club because I know that the compliance solution for their membership is absolutely 100% squeaky clean,’ rather than having individual relationships with 5,000 or so brokers.
Stuart Glendinning: Absolutely, consolidation is almost inevitable. Lenders have limited resources and are far more likely to focus their key resources on those organisations that can deliver, rather than those that only do a small amount of business.
Jonathon Whiteley: What about the future of traditional packaging?
Stuart Glendinning: Packaging in the mortgage industry is the equivalent of ship building in the manufacturing industry ‘ I can only see it being in retreat. I am not saying it will be eradicated, there will still be packagers, but I can confidently predict there will be fewer. Those that survive will need good distribution to back them up.
Steven Scholes: Speaking also as a packager, I would disagree. The role of the packager will change. Look at how packaging is done now, the technology and the implications of how people fill out applications, clogging up information databases and so on. If I am a lender, I want a clean database, not one clogged up with defunct data ‘ so that is an opportunity for packagers. The packager can help with volumes by acting as an outsourced processing department for the lender. Then you have to look at the benefits of the packager in terms of distribution, the additional marketing and the technology side of the platform. Bigger packagers will survive, although what they do will change.
Rachel Williams is editor