Super distributors are the future of the mortgage market, and Linda Will, managing director of new intermediary lender Accord, is busy positioning it to take full advantage of the coming market changes.
Accord was launched on 14 April this year and is a wholly owned subsidiary of Yorkshire Building Society (YBS). Still in its infancy, Will is trying to establish the brand as an independent entity and not simply a division of YBS. To ensure it stays on the map following Financial Services Authority regulation of the mortgage market, she is as desperate as everybody else to establish solid distribution lines with time to spare.
She says: ‘We are faced with an interesting period of change where brokers who are currently in the market may not be there in a year’s time. They may not have the same status in a year’s time either, and may be dealing through different partners and distributors than they are doing at the moment. So we need to try and figure out who the winners and losers are going to be in that shake up and make sure that we are on the right panels and in the right places at the right time.’
She adds: ‘Instead of having a lot of networks, lending partners and local organisations doing things on their own, I think you will get around 15 or 20 super distributors. Whether they are networks or old style lending partners reinventing themselves, I think you will see concentration of power and negotiating capability in a much smaller number of companies. It will be interesting as the relationships develop between the lenders and the distributor firms, and then between those distribution firms and their own distributors, like the guys in the street. It is going to be quite different to how it is at the moment.’
Currently, Accord focuses on the prime market, although Will says reviews of extending the product range are under way. She explains: ‘We have got to start looking at different markets other than those which I would call plain vanilla products, although we are not going to rush into looking at sub-prime and buy to let. They are part of this year’s strategic evaluation, but more importantly we are going to be looking at niche markets like mortgages for professionals, and working with niche brokers.’
By looking at niche markets such as the professional and new-build sector, Will does not have to compete with other providers on a purely price basis, and can widen the competitive front to product and service, where she believes Accord’s strengths lie. Indeed it was the desire to offer highly serviced products in these niche areas, that was part of the philosophy behind setting up Accord. Will’s background is in building societies, but she recognises that they will have to diversify to remain competitive. She says: ‘We were seeing a lot of people talking to us about products where the juxtaposition between product, service and criteria were such that they wanted really special packages. A really good example is things like the new build market where the pricing has to be competitive but it does not have to be top of the range.’
However, it was difficult for YBS to offer this type of deal to partners. As Will comments: ‘If you are servicing the business through 132 branches there is no way that you can guarantee the service levels or the appropriate concentration of skills [throughout the network].’ For Accord however, it is easy enough to establish a dedicated team that can offer and service a dedicated product for a set market and service it appropriately.
Linked into offering special services and products to partners, was the problem of customer accessibility to products. As a mutual, the last thing YBS wanted to do was find its customers unable to get hold of the best products through its branches, but be able to access them from other networks or broking partners. Will says: ‘We had a growing number of the large partnerships coming to us and saying we want exclusive for this bit of the market, or we want to do this particular thing.
‘As a mutual all of our products were available to all of our members all of the time. So that prevented us from doing exclusives. We did not want a situation where someone could go to Legal and General and get a YBS special product at a rate perhaps more competitive than if they walked into a YBS branch.’
There were also problems over customer ownership that the YBS mutual model threw up. Will is candid about the conflict this created: ‘Because we are a membership organisation there was a very strong feeling within the society that we owned all our customers and the members owned us. And that stretched to a number of issues, particularly to the issue of cross selling our other products. Clearly the intermediaries rightly believed the customers belonged to them and they also thought an organisation that goes into that relationship is undermining their ability both to maintain that relationship and to maintain additional income.’
Therefore, Will set up Accord on the foundation that the client belongs to the broker, and cross-selling is something that is only done with express permission of the broker.
Friction between broker and lender is no new thing and the high levels of remortgaging are fuelling it further, according to Will. She believes remortgaging will continue as long as the loss leading offers remain in the market, but questions how much longer they can last. She says: ‘A lot of organisations effectively have no back book any more. There is a common sense thing that says this [the low discount rates available] has to stop sooner or later. If the back book disappears, then we will see a massive cut on the level of discounts.’ She goes on: ‘If all of a back book is churned out then everything is on acquisition products. In this case acquisition products are going to have to become a lot more expensive.’
If it comes to this, and lenders have to base their products more closely on how efficiently they can raise and lend money, Will says she would be delighted. Whether the more diversified lenders would be quite so pleased she is not so sure.
Accord is on target to lend around £750m in its first year, and Will says she expects this to double next year. If Accord can hit the £1.5bn figure, it will represent the intermediary business that YBS was doing before Accord was launched. Will is happy at how the launch and early months of Accord have gone and says: ‘The primary concern was to protect distribution and so our first challenge was to manage the transfer of the intermediary business as painlessly and effectively as possibly from YBS to Accord. And we have pretty much done than. Now we have to walk the walk.’
The language Will uses to describe the lender’s attitude to its future, its service and its products is bullish, and draws smiles from the cynical. She talks of excellence, of championing the brokers’ cause, and being flexible enough to ask and deliver what brokers want. It is difficult not to think this is purely lip service to an ideal. However, when she explains how every level of employee, including herself, is involved in a programme to get feedback from brokers who have completed cases with the lender on a quarterly basis, it seems there must be something in it.
Nevertheless, it is not only Accord that is going to have to prove itself in the next year or two, and Will believes many are still well off the pace when it comes to getting ready for regulation. She says: ‘We have got a short timetable. It is July and the whole thing comes into effect in about 14 months. A lot of the anecdotal evidence we have suggests the level of awareness in brokers still remains piteously low which amazes me.’ In their defence however, she says the options open top them are not yet apparent and so they cannot be wholly blamed for hiding in the shadows.
She explains: ‘A lot of the networks and other distributors still have not shown their hand as to what they are going to do. So even if you are aware of the fact that you are going to have to make a choice the extent of what your options are is not yet available or clearly visible, so I do not blame people for not jumping aboard, on a lot of things. If the options do not become clear then there is going to be a heck of a lot of scrabbling around at the eleventh hour.’
What comes out of the scrabbling remains to be seen, but Will is determined to have Accord lined up and servicing the broker market in whichever guise it emerges.