When one considers the amount of UK mortgage lenders who have an American parent company lurking in the background, GMAC RFC, igroup, Future Mortgages ‘ the list includes a high proportion of the non-conforming lenders operating in the UK ‘ it is perhaps surprising that the sector does not have more US citizens in senior positions. In the banking world this is certainly the case and the City of London is full of American accents, but in the UK the mortgage industry seems to prefer home grown talent.
As an ex-New Yorker, David Tweedy is part of an exclusive group of senior managers from overseas, and even after 17 years in this country his accent remains resolutely un-anglicised. A relaxed and affable man, Tweedy arrived in the UK through a transfer with his then employer Morgan Stanley. However, once here he decided he no longer wanted to be an accountant for the merchant bank, and this led to his introduction to the UK mortgage market as a financial planning and analysis manager with The Mortgage Corporation.
Commenting on this change in direction Tweedy notes: ‘This position eventually led to myself and my old boss from The Mortgage Corporation setting up a centralised mortgage lender for Bear Stearns. That company is now Platform but in the 14 years to now we have had five owners and three different business models.’
Because he began his career in the UK mortgage sector, Tweedy has no experience of the US mortgage market, but being American has still had its advantages. ‘Up until being bought by Britannia in 2001 the company was always owned by a US parent company and I suppose I added a certain amount of value in my ability to translate the terminology and culture between the two groups,’ says Tweedy.
He also notes that the years of US ownership has left Platform with a different corporate culture to the average non-conforming UK lender. ‘Culturally it is quite different to other UK banks or building societies, it actively behaves in not so much an American as an entrepreneurial way and was allowed to develop in like that because of its history of ownership.’
The last 12 months have been a busy time at Platform, and apart from contending with the boom in mortgage sales it has managed to merge with the other part of Britannia’s intermediary mortgage business, Verso. Now completed the merger threw up a few lessons for Tweedy, lessons building societies such as Portman and Staffordshire may be about to learn themselves.
Tweedy admits it was not straightforward: ‘We assumed that during the period leading up to the merger that Verso would continue to originate business, and that Platform would then pick up where it left off. That did not happen. When mortgage advisers heard that the offices would merge and that the site they were giving business to would soon no longer be there, their business began to drift away.
‘Getting that assumption wrong affected the phasing and the pace of combining the books. However luckily it turned out to be a bit of a blessing in disguise. The merger meant Platform went from 85 staff to 200, and that involved a lot of training, which meant the new staff were able to learn the methods and products in an environment that was busy but not swamped.’
Tweedy says he is amazed at the amount of change in his and the other senior management’s day-to-day jobs. ‘When you grow a company to this degree it is actually quite a different job and whereas most companies get to grow to that size gradually, we went there instantly,’ he says.
Now lending across the spectrum from prime to non-conforming, Platform must stand and fall on its products and services. While the company puts a lot of stock in its service proposition, demonstrated in the way that it has aligned its sales force with its in-house sales processing teams, it sees a flexible lending criterion as another way of differentiating itself. For the adverse end of its market Platform decides on criteria based on analysis of the performance of its portfolio.
Tweedy explains: ‘What we have found is that borrowers who have had historical arrears performed well within acceptable boundaries, and that borrowers who are struggling to make payments in the three months prior to coming to Platform do not perform particularly well. Another way of looking at it is that if the borrower has missed a payment in the last three months then you have a deteriorating borrower, with neither the ability and/or the will to pay the mortgage. So as a lender we say that under no circumstances can they have missed any payments in the last three months.’
The fact that a borrower has made the last three payments, plus the other standard criteria around the product, means it is easier for Platform to streamline credit criteria across the board and for intermediaries to understand it. ‘As soon as you allow deteriorating credit on to the balance sheet you need all these rules, checks and balances. And by turning away deteriorating cases we do not lose much business,’ adds Tweedy.
So what of the future for mortgage rates in general? Few could have failed to notice that due to movement in the money markets the cost of fixed rate deals has dramatically risen in recent weeks, while the Bank of England base rate has moved downward again.
But despite Tweedy’s background in banking and financial analysis, he admits to a degree of confusion as to where rates are heading. ‘In general I think that interest rates are about to rise, but I did not think that two weeks ago. However, due to consumer spending in the UK, industrial figures in the US, and general growth prospects, the next issue for central banks is probably going to be dampening down demand and inflation. This is a sea change from two weeks ago, prior to that I was convinced rates would not rise as there was no positive macro economic news, but who am I to buck the markets?’
How does this translate for brokers and their clients? For intermediaries, depending on their borrowers appetite for risk, Tweedy suggests choosing fixed rates before they rise further. He says: ‘The markets expect rates to rise so if you can get a two to five year fix at or around current variable rates then you will probably have done quite well. There are still some of the old lower rate fixes out there.’
An issue soon to be raising its head in the market is that of procuration fees, or more specifically the grading of procuration fees according to the service the broker gives the lender. Alliance & Leicester is currently researching the market as to whether it should offer higher fees to those brokers who apply online and offer correct supporting paperwork, and Tweedy sees merit in the scheme.
He says: ‘In principle, and intuitively from a business perspective, this would seem to make sense. Whether it is actually possible to apply it in the real world or not I have doubts about. There will always be questions over who is responsible for a given series of events. If an application comes in how do you judge whether it was packaged properly? It could be the cost of measuring that, putting in systems for measuring, and arguing about it when it goes wrong could cost more than the savings you would make.
‘However with respect to the internet it is more black and white, and I can see the point, but I still think it will result in arguments. The reality for the market as a whole is that there are not too many lenders out there that can take an online application, so this idea is still in its early days.’
Looking to the future the issue of most pressing concern is the same for just about everyone in Tweedy’s position ‘ regulation and what impact it will have. When the IFA market became regulated, and IFAs joined networks for their compliance functions, providers found themselves in a scramble to get on network’s panels. However, Tweedy is not certain the same will happen in the mortgage market, noting that not all panels are from specialists in mortgages per se, and therefore may have limited distribution value.
He says: ‘I am not sure that lenders would look to jump onto the panel band wagon to access distribution. We are already with most of the players in the market, but it still remains to be seen how this will unfold. I do not think anyone in the UK mortgage industry can put their hand on their heart and say they know what they are going to do post-regulation. However distribution is part of the budget and will remain under consideration. Six months from now everything will become a bit clearer.’