There is a fairly well-kept secret in the mortgage broking market ‘ and that is the opportunity to team up with home builders to provide attractive finance packages for borrowers. Typically, mortgage advisers generate business from direct marketing activities such as advertising and mail shots, or from initiating and cultivating ‘business introduction sources’ through other professionals such as estate agents and solicitors.
Almost all brokers use one or all of these initiatives, but only a few successfully crack the new build market. Those that succeed in this arena tend to specialise ‘ and make a fortune out of it ‘ and have therefore, kept this secret to keep their competitors at bay.
Not only is new build extremely rewarding for brokers who take it seriously, but it is a great market for lenders too. Even the house builders themselves recognise the benefit in linking up with brokers offering mortgage deals as part and parcel of their house sale.
For many years, we have seen a barrage of purchase incentive schemes, some well tried and some innovative, offered by the nation’s house builders. And when you look at house builders’ adverts, messages such as: ‘Move in for £99 with our 100% mortgage deal,’ or ‘We will pay your 5% mortgage deposit’ dominate. With the exception of part exchange, the mortgage-related incentive has been by far the most popular and successful sales aid the building industry has ever had in its weaponry. Yet amazingly, many lenders and brokers still give new build lending a wide berth.
Some brokers and lenders have seized this opportunity to build mutually beneficial relationships with house builders. Mortgage brokers, lenders and builders have not worked so closely together since the good old days of mortgage allocations. As a result, a new breed of highly focused operators has emerged over the last few years ‘ specialist mortgage brokers offering a dedicated service to house builders.
The total solution
During the 90s, a firm called MPI was set up to offer a complete mortgage solution to several blue-chip house builders, including Wimpey, McAlpine, Westbury, Bloor and Barratt. It was an extremely fruitful market, generating regular flows of commission and procuration fees such that a profit margin of 25% to 30% was not uncommon.
But today’s is a highly demanding market ‘ builders need a mortgage service which operates when they do, and that usually means seven days a week. Gifted 5% deposits, 100% and higher income multiple schemes need to become the norm, not to mention a constant stream of progress information to both the builder and the client.
John Hibbert, sales and marketing director for Wimpey Homes Midlands, says a relationship with the broker is key: ‘Our industry needs to do everything possible to secure each sale. We realise that providing a packaged finance solution ensures the purchaser gets quality advice, while the house builder keeps control throughout the sales process.
‘Working with a specialist broker also means our purchasers have access to mortgage packages they simply could not negotiate for themselves in the high street. And they have access to them, seven days a week when lenders’ branches are closed.’
Providing such a service requires close working relationships between the broker, builder and, crucially, lenders who are serious about the new homes market. Paradoxically, many lenders have discouraged this sector by disallowing builder incentives and imposing restrictive underwriting criteria. Some have a reputation for ‘down-valuing’ new homes simply to veto any incentive being offered by the builder. And many lenders ‘ including the larger players like Abbey National and Halifax ‘ will admit to having been ‘in and out’ of the new build market, as is evident if you review their various lending criteria and product pricing shifts throughout the last decade.
However, mortgage advisers transacting volume business with the lenders can find themselves in a position to influence this attitude. While most lenders will claim to have a serious interest in the new homes sector, few can claim to have designed specific products for this market. In fact, only a handful of lenders take the new homes market so seriously that they would consider such specialisation. Today, many high street lenders such as Halifax take a market share of between 12% and 25% of the new homes market, so their reticence to design bespoke products or to enter into ring-fenced deals with certain brokers is understandable.
But some lenders have pioneered an adviser-dedicated strategy to provide exclusive products to assist new home buyers. Such bespoke products have included permitting a builder-gifted 5% deposit, free arrangement fees, a free valuation and free indemnity insurance and a low (discounted or fixed) initial rate. More recently, a number of lenders, such as Halifax, have removed the delays and costs involved in ‘re-inspecting’ new homes at completion. Royal Bank of Scotland, for example, can help its cutomers avoid the need for an individual valuation, but these initiatives tend to apply to both direct as well as adviser-introduced cases. Nonetheless, all these factors oil the wheels and add prosperity and longevity to the specialist new homes mortgage market.
So if the market offers so much to advisers, why have so few caught on to this tremendous opportunity and capitalised on the new homes sector?
Too few have sought to identify the key demands of builders and work closely with them. Brokers who have tried and failed are likely to describe the new homes market as unreasonably demanding, fiercely competitive and fickle. And, to some extent, they are right. It is demanding, competitive and perhaps fickle. But on the other hand, it is also a fast-moving, highly lucrative and extremely rewarding market to be in ‘ seize the opportunity and build a great business.
A mortgage-related incentive is one of the most successful sales aids house builders have in their weaponry.
Brokers can negotiate deals on behalf of builders that borrowers cannot access on the high street.
Bespoke products include loans with a LTV in excess of 100%, or 5% gifted deposits.