What is a mortgage club?
A club, such as Legal & General, Prudential, Norwich Union or The Mortgage Alliance, makes mortgage brokers aware of products and services available from lenders. In essence they provide a support function to these brokers and also work with lenders to provide them with volume business. Through a club, brokers can have access to a wide range of lenders dealing with all aspects of the market, from prime through to niche and non-conforming.
How do clubs differ from packagers and networks?
Packagers have a very different role from clubs in the mortgage market. They provide an outsourced administration function whereby they ‘package’ applications from brokers (ensuring all correct documentation is provided) and then send them to lenders. Although some do offer exclusive products to brokers, their primary focus is to ensure that lenders receive high quality applications that can be processed quickly with minimum additional information. Packagers are prevalent in the non-conforming/sub-prime market.
Networks or distributors, are more similar to clubs in the type of services they offer. They are companies that market products to brokers on behalf of lenders. They negotiate exclusive products and help to find the best product for the broker’s clients. These companies can also offer generic application forms, call centres to assist brokers, single valuation sales and teams to help with specialist cases such as niche or non-conforming business.
What benefits can brokers obtain from joining a club?
The name ‘club’ is slightly misleading because, rather than having to join (although brokers may have to register), brokers will ‘use’ the services of the club and are not restricted to using just one club.
The benefits of using a club can be extensive. Some clubs offer marketing support, product updates via email, links to estate agencies, case tracking and survey advice. Others are set up in a streamlined fashion with little add ons, to enable them to offer enhanced procuration fees and exclusive rates.
In many cases clubs also pay enhanced procuration fees because the volumes of business they give lenders is considered so valuable. These clubs can also have arrangements with insurance organisations, which enable the latter’s members to take advantage of all of these facilities as well.
Do brokers have to pay to be a member?
While networks charge brokers to become members, brokers register rather than join clubs, and so there is no fee. For those new to the industry it is worthwhile considering the benefits that these organisations can offer.
How much business is conducted through mortgage clubs?
The amount of business processed is quite phenomenal. Recent reports show that Prudential’s Premier Mortgage Service recorded applications worth £24.5bn and completions worth £18.35bn in 2002. In the same year, Zurich Advice recorded applications worth £10bn and completions of £6.5bn. The fourth largest player in the market, Norwich Union, reported that applications for its mortgage club as a whole were £4.9bn with the IFA club totalling £3.1bn of this figure.
Are mortgage clubs tied to one product provider?
No. Some clubs give access to the whole market while others have a select number of lenders on their panel. However, what is important for brokers to establish is if the club they use gives them access to the best products for their clients. This can easily be achieved by the club having a panel of select lenders rather than the whole market, so a limited panel is not neccessarily a disadvantage.
Why should a broker submit business through a club rather than deal direct?
The main advantage is the additional support that the club provides which the broker can use. Facilities such as marketing support can help a broker grow his/her business and initiatives such as case tracking can help make the submission process and the day to day work of a broker increasingly streamlined. Also, brokers may well find they get paid more by introducing business through the club rather than sending it direct.
What will happen to mortgage clubs post 2004 regulation?
Brokers will soon have to make the choice as to whether they become directly regulated or become an appointed representative. If they choose the latter they will have to make a decision as to who they wish to regulate them. This may be a current network that takes on mortgage brokers, a distributor that wishes to take on more of a network role or a club that also chooses this route.
The Financial Services Authority does not believe that mortgage clubs will be undertaking regulated mortgage activity if they only act as a distribution function for lenders, providing information to intermediaries and not dealing directly with individual borrowers. But, until all the clubs have signalled their intentions it is difficult to know what the future holds for them or the brokers that use them. One thing is clear, they will have to change.