By far the most compelling of the presentations at the recent CML Annual Conference were those from Simon Samuels of Schroder Salomon Smith Barney and Philip Williamson of Nationwide. Philip followed hot on the heels of the analysts which only the naÃ¯ve could imagine was down to the chance of programme scheduling.
Fundamentally, the economist came to tell the assembled company what they already knew: that a market awash with incentive weighted offers for new customers, provided at the expense of existing customers, was not financially viable and, in the final analysis, unsustainable. Unlike most, this analyst actually brought some proof.
A good argument was set out to demonstrate that over the average life of a loan most products lost money and worse than this, that we had educated the mortgage-holding public to switch lenders as often as it made financial sense for the customer to do so. In short. the much derided ‘rate tart’ is a Frankenstein monster of our own creation. No one disagreed with him.
So, what will the long-term outcome of this unsustainable state of affairs be? Well, unsurprisingly a market is envisaged where the largest lenders will dominate the commodity market and where there is an adjustment of pricing in favour of existing customers. Inevitably this will mean consolidation on a massive scale with the medium-sized lenders losing out. Only the smaller local and specialist operators will be able to survive alongside the big players.
Enter stage left one big player with a clear mission. Philip Williamson’s eloquent and passionate explanation of the objectives and outcome ‘ thus far ‘ of Nationwide’s pricing policy made utter sense against this background. It had everything, the moral high ground, undeniable logic, sound long-term financial planning, and even a spirited defence of mutuality.
Even Michael Coogan acknowledged that he expected his members to reduce in number significantly over the next few years.
He puts this down to the impact of regulation, but frankly the financial realities of commodity mortgage lending are going to account for a far greater number of the casualties than regulation ever will.