Savills Private Finance is a grand name for a company – it suggests quality and discretion and this was done deliberately. It is a name designed to sit well with the clients it specialises in who are to be found at the top end of the market. The name also fits in with the central London location of its head office, which was no doubt also chosen to reinforce the impression that this is a serious player in a serious sector of the market. So it is a relief to find that, on entering the building, it is not oppressively traditional and staid, and that the company is in fact relatively new and forward thinking.
Mark Harris, managing director of Savills, reflects this, being neither old nor staid himself. He was involved with the conception of Savills Private Finance in 1997 when estate agency FPD Savills decided that it was missing out on a substantial revenue stream by outsourcing potential mortgage business and decided to start its own broking arm. And it was partly his influence that helped to steer the company down its current path.
Harris must be one of the last of the generation who successfully entered the financial services industry at 16, without the benefit of a university education. “I started work with Nat West Bank, straight from school. I could see no reason not to get into the City early and at that time all the banks were recruiting heavily. It all worked out quite well, although I never made it to university as planned,” he says.
He spent the first five years of his working life in general banking, including time on a management development programme designed to whisk competent people through the ranks. He then began working with an IFA within the bank, causing an abrupt change in his career. He explains: “I went from banker to IFA overnight really. I worked as a NatWest IFA for about four years before the bank’s IFAs went tied, which I was not happy with, so I then joined John Charcol.
He cites Charcol as the company that made him the broker he is today. He says: “I would never class myself as a tremendous salesman but mortgages are a different type of sale and I have always been terrifically organised. This allowed me to evolve with Charcol, it was a great company, I had a tremendous 18 months there, it is thanks to them I became a good mortgage broker.”
In common with many start-ups, Savills has seen its business model change extensively since launch. The company naturally still works closely with the estate agents for mortgage business, but has outgrown this as a main source of leads. “We are not an aggressive company in terms of estate agent sales. It brings in about one in seven mortgage applicants,” says Harris. These days six out of seven applicants come through the press, accountants, solicitors and non-mortgage IFAs.
As with many brokers around the country affordability and time constraint issues have seen a rise in the use of self-cert mortgages. He defends the product but points out that they need not exist at all. Harris notes that publicity has failed to identify that self-cert was brought in to cover peoples overall income. He says: “Earning £30,000 and saying you earn £50,000 is clearly fraudulent but saying you could earn £50,000 in another way, maybe through renting a room out or parental support or dividends, is what the product is for. This market was specialised as recently as three or four years ago, now everyone is in it, based on the principle that if clients put in a big deposit you will be OK, and there is sense in that view. If someone has a 20% deposit then there is 20% of their pain before the lender would lose out.”
He would also like to see lenders examine affordability in a more creative way. “Compare a single person with no debt on £50,000 with a married man with children and debt on £50,000. The affordability on the first is far greater and he may be able to afford five times income. But the mortgage industry is still working on the same multiples it used in the 1980’s, which is causing the self-cert problems,” he says
A problem he acknowledges with this approach is that when the Halifax said it would lend on affordability it ended on the BBC news, exposed as: “Halifax lend on six times income”. He says: “The lending industry is damned if it does and damned if it does not. If everyone lent solely on a full status standard multiple basis then we would have no property market. To summarise, I do not think self-cert is as big a problem as has been made out but you do have to be careful who qualifies for it. “
Another aspect of lending which is receiving adverse publicity at the moment is the tendency for more and more people to take out a buy-to-let mortgage instead of saving into some form of pension vehicle. Savills’ clients are the demographic group accused of this behaviour. But Harris, as an IFA himself, questions the wisdom of this approach. “Personally, I think buy to let can be an important part of someone’s pension planning but it really should never be at the expense of a pension. Property should compliment what you already have. We are seeing people not fully funding their pensions, as in the old days, but saving a bit to buy a couple of flats.”
He traces the reasons back about six years, to when there were maybe 12 lenders and someone with a buy-to-let property would be unusual. “There are around 50 lenders now, fuelled by house price rises and low interest rates of course but also a deep seated cynicism about pensions and the stock market. You can see why after the Equitable situation and off the back of the split-capital trusts debacle,” he says.
Post regulation there has been speculation that brokers will begin to look at the commercial sector both as a haven from regulation and as a way of boosting general income. Savills is one of the few brokerages that has access to an in-house commercial team. However he cautions against non-specialists entering the market as a bolt-on to their general business. “No matter how tempting, most mortgage brokerages are not equipped to do commercial debt broking. They do not understand the business cash flow issues or know the lenders involved. All of us here at Savills have clients with commercial property, but we all say we do not know enough about it, and refer clients over to our specialists.”
However, he expects the market will see more and more intermediaries cross referring into commercial debt brokerages. “Commercial property is a big market and tempting to get into but there are a lot of domestic mortgage brokers who try and dabble in the commercial sector and I am not sure it ever really works. You need to know your specialisation and working in other sectors dilutes this. If you claim expertise in too many areas I think most clients will see through that,” says Harris.
On the inevitable subject of regulation, he generally approves of what the FSA has done so far, although he declares the exemption of buy to let and reversion schemes “a fudge”. The biggest change post-regulation for Savills will be in the general insurance sector. “We operate a general insurance division and, post-regulation, have plans to develop it. General insurance clients tend to be mortgage clients, we want to widen the scope and sell to non-mortgage clients. It would have been nice to regulate insurance and mortgages at the same time though.”
Savills itself became the focus of attention recently when it announced that its mortgage pre-application illustrations would be carrying examples of repayment at both 6.5% and 7.5%. This was seen by some in the national press as an admission that the market is to get much tougher for borrowers, but Harris sees the move as being purely pragmatic.
“We just thought it would be sensible to give further illustrations. We are an industry under attack. In the mortgage industry we are seeing criticism levelled across the board – irresponsible lenders and irresponsible advice. This is not a true picture of the industry but we wanted to come out with something that could be seen to be cautious and prudent. We are just making sure our clients are aware of what the payments would be at that rate and that the client is comfortable. It is not an expectation of what is going to happen but does no harm to make people understand the effect of higher interest rates. We word it carefully so the client understands,” he says.
While Harris admits that it is the top end of the market that usually suffers first in any downturn, he remains confident that Savills will be able to maintain its stance and is flexible and dynamic enough to be able to diversify successfully into other growth sectors in order to remain profitable.
This is, perhaps, proof again that this is one company where you get much more than you may first see.