What is the Mortgage Advice Bureau’s background?
We began as Ashley Adams in 1992 and grew our own estate agency group trading as Ashley Adams Financial Services. After Ashley Adams became the market leader in Derbyshire we set up our own mortgage shop free standing of that business, the Mortgage Advice Bureau, in 1995. That worked well and we became the market leader and the strongest mortgage brand locally. We then went into the Ashley Adams offices as a completely separate mortgage broking identity and that business has since been licensed off to the management. Four or five years ago we started off a franchise operation, with a network that now stretches from Newcastle in the North to Worthing in the South. We now have more than 90 offices.
How do you think impending regulation will affect you and other intermediaries in the industry?
For much of the industry, it will depend on how much compliance responsibility the networks and mortgage clubs are going to take on and this remains to be seen. Then there is the issue of fee charging and transparency which we will all need to look at. There will continue to be change and a number of businesses are going to struggle to continually adapt, so there will be casualties. As for us, I don’t think we are going to be badly affected by regulation, as we have been working in that direction anyway. We have a close relationship with the Legal & General (L&G) Mortgage Club ‘ it deals with some elements of regulation for us and supports us in other areas. We also have a robust infrastructure ourselves that enables us to deal with both the Mortgage Code and regulation by the Financial Services Authority come 2004.
Post 2004, will there be a place for smaller introducers?
The model is that the bigger players are starting to look at merging. If you look at all the direct salesforces, they are all turning into separate businesses and the smaller one-man businesses are being encouraged to get involved with larger firms ‘ such as networks ‘ where the resources and focus are available. There is a definite space for the one-man band but they need to be looked after as far as legislation is concerned. If their business model relies solely on procuration fees then they are quite exposed.
If you look at how income was made up a few years ago, 85% to 90% came from endowments and 10% from procuration fees, with maybe some protection on top. Now, there is no need for an endowment policy to pay off a mortgage and the penetration of protection has actually dropped quite a bit, therefore for those brokers not charging direct fees, there’s really only procuration fees and a bit of protection.
I would be worried if a business model involved more than a third of income coming from procuration fees. There has been a definite downward pressure on commission earnings, so we will all have to work smarter.
How should intermediaries react to pressure on lenders margins?
At the moment, the networks and mortgage clubs allow access to higher fees to lower producing intermediaries, but it tends to mean that the lenders are paying quite a lot for this business. If introducers are able to give volume to the lenders and understand the margins that are there, the lenders can continue to make profits from receiving business from us. It has to work both ways ‘ at the end of the day lenders have to make margins like anyone else. What we intend to do is take an interest in where they make their profit because if we understand their model, we can support it in the best way that will help us retain the margins and fees from them.
Do you think there is a necessity for a common mortgage trading platform?
Not really, I would say that if a broker had a system like Trigold or Mortgage Brain that would be fine. These systems should be used to double check what is available, as the majority of advisers are very aware of what is available ‘ that’s their job. They also help demonstrate to clients the choice that is available and for getting the more specialist deals through. Trying to come up with a conclusion on a common trading platform that everybody is going to be happy with would be would be ridiculously complicated. At the moment, most of our business goes through L&G, which is connected at present to Mortgage Link. However, it is soon delivering a system called Launch Pad which allows the choice of Mortgage Brain or Trigold, which means our advisers will opt to use either on a day to day basis.
Do you envision the entire application process going through the web in the future?
We are already as automated as we possibly can be. I think both lenders and insurers have to make their margins by making their administration more efficient, and that can only come through technology and ensuring that paperwork is received fully completed. Lenders are beginning to make it advantageous to submit electronically, because that is where they are going to make savings and provide a better service. Submitting applications and receiving agreement in principle’s has been a painful exercise over the last three or four years. Now we are seeing several lenders simplifying their processes and backing it up with behind the scenes resources. We are finding we get better service from some lenders by submitting applications electronically, as lenders have been stretched this year because of volumes.
Paul Robertson is a staff writer