Legal & General’s (L&G) Mortgage Club was set up in 1995, as a core division of L&G, tasked with supporting sales of L&G’s protection products.
Its forecast on setting up was to transact around a billion pounds worth of mortgage business a year, but since then market conditions have been nothing if not favourable and the Club has grown beyond all expectation.Although last year L&G Mortgage Club completed on £13bn worth of business, making it the second-largest mortgage club in the UK, it remains a cautious organisation. John Cupis, sales and marketing director at L&G, and a cautious man himself, does not see growth as the Club’s primary strategy.
Cupis, one of the more visible personalities in the mortgage market, and well placed to give a broad overview, believes the way forward for all the mortgage clubs is through providing long-term value, both to lenders and members.
‘It is not just about being bigger, this is why over the years we have worked with a small number of lenders, which means we can focus our volume and effort with those rather than dilute our effort among more lenders,’ says Cupis.
Although three quarters of Mortgage Club members are tied to L&G for their protection business and are known as business partners, the other quarter are IFAs. However, in terms of business volume it is the other way around, with three quarters of Club business coming from the IFAs.
Named in a Mortgage Solutions poll at the start of the year as one of the top 20 most influential people in the mortgage market, Cupis has been at the Club since 2001, having swapped over from L&G Bank where he was marketing director in charge of mortgage sales and marketing, product development and intermediary relations.
He began his career at NatWest in 1986, serving eight years in a variety of corporate roles in international and domestic banking. However, his career in the mortgage industry did not really take off until 1995, when he joined the bank’s Mortgage Services arm in Birmingham. It was here that he received a thorough grounding in mortgage finance, holding a position as mortgage marketing manager and dealing with product design and pricing as well as NatWest’s direct sales and product business. To have risen so quickly through the ranks did not leave much spare time but somewhere along the line he has also managed to acquire a stake in a greyhound owning syndicate.
This proves to be another club Cupis has seen success in although perhaps unusual for one so cautious at work. ‘I have a stake in two greyhounds, one, Corelish Cruiser, has done really well, running 103 races and winning 25. It is a hurdler based at Wimbledon, and has a high success rate, in 75% of his races he has placed in the top three,’ Cupis says. While the other dog is still a puppy, and still learning, the £11,500 that Corelish Cruiser has won sees the eight man syndicate in the black, rather like the Mortgage Club, so perhaps not too much of a gamble after all.
One of the main issues facing the Mortgage Club at the moment, as with everyone else, is regulation or, more pertinently, its results. In general, Cupis is in favour of most of the propositions put forwards by the Financial Services Authority (FSA), but is nonplussed at the amount of consultation papers flooding the industry. He says: ‘I believe regulation will improve standards for the mortgage market in general but, given the huge amounts of time and effort that the industry is having to put into interpreting all these consultation papers, it will be interesting to see what benefits accrue at the end.’
Many in the industry see clubs losing out to networks once regulation is in force as brokers take advantage of compliance functions offered by networks. Cupis disagrees and cautions brokers against making any hasty moves before they see what regulation actually brings.
‘The degree of compliance currently offered by networks is interesting. After all, at the moment there is no requirement for them to offer FSA-style compliance. Currently, any compliance is only within the MCCB self-regulated world, so in many ways there is little difference between a club and a network, as things stand.’
Nevertheless, he admits that some networks are facing a bright future. ‘Some of the networks are positioning themselves to take advantage of regulation and that is certainly their main growth potential, they have all the ingredients in place to make that happen,’ he says.
However, he believes that mortgage clubs will remain massive introducers for the lenders. The Club itself remains a bulk buyer, aiming only to provide quality products, exclusives and valuation fees. As far as the regulated world goes, Cupis and his fellow directors have held off on making a decision. ‘We are still waiting to see the outcome of CP146. Until that is released in May we will not make decisions. We also have to understand the implications of CP174. But there is no doubt all this regulation will radically change the way that we position ourselves in the mortgage market, ‘ says Cupis.
An effect of regulation may be that both clubs and networks become more important to lenders, as happened in the regulated insurance market, where product providers need to be on a panel in order to see sales in any great bulk. Cupis says: ‘Post-regulation a lot of lenders will be looking to join panels because, whatever happens with regulation, post-2004 we can see a market made up of larger aggregators, in whatever shape or form that takes, clubs, networks or whatever. I think lenders are going to find themselves pressured to join panels as a source of volume. But the difference between this market and the insurance market is that there are far more lenders than providers, 150 plus, so the issue will be how big those panels will be.’
Cupis notes that the trade press has carried several stories recently concerning unsatisfactory service from smaller aggregators, but denies that this sector of the industry is in danger of getting a tarnished reputation. He says: ‘Aggregators will have to look to their structure and management. The big difference looking forwards is that the FSA will be regulating the market and they are going to have to conform to rules like anybody else if they want to run networks. A badly managed company cannot be legislated for, but there are rules that can be put in place that may help protect people. It is too early to say whether brokers will be drawn to the safety of the big names or not, but we clearly have an advantage in having L&G as a brand, it is attractive and we are conscious of protecting it.’
An area Cupis is keen to improve upon is in the Club’s e-commerce links with its panel. The Club has a range of links with lenders, with the level of e-commerce dependant on where the lenders are, some being more advanced than others. L&G has some, offering only decisions in principle, but increasingly lenders are intending to launch with full application online abilities. Cupis sees working with a small number of lenders, as an opportunity for influence in the drive for value through e-commerce. He says: ‘All of our lenders are now committed to e-commerce, which will massively increase efficiency and sales productivity for the brokers. The mortgage market is not just about new products, exclusives and procuration fees, it is as much about improvements in efficiency. In time the entire mortgage market is going to be online.’
He adds: ‘Lenders find organisations such as ourselves useful in other ways as well. Some lenders test markets with exclusives through clubs and networks, as a controlled way of testing against a market. If the product works and is successful then it may appear as a mainstream product. For example, last year we launched several e-commerce exclusives as lenders tested their e-commerce systems without having to open to the entire market and now these systems are the norm.’
He claims those lenders who have been up and running for some time are seeing huge proportions of their business going through electronically. ‘We are already seeing differentiations in procuration fees for online versus paper applications, as lenders see the benefit of back office savings and pass them on. The whole industry will be entirely online in a few years,’ he says.
He does not believe that the parallel growth of sourcing systems is going to force brokers to consider the whole of the market. He says: ‘Regulation will probably be offering three options. Brokers will have the option to operate whole of market, with a limited panel or even be tied. What is not clear at the moment is whether brokers will want to tick the last two options, but it does not follow that because sourcing systems offer whole of market that everyone will go that way.’