Mortgage packaging companies deny they are sacrificing profitability by trying to grow too fast.
Sub-prime specialists The Finance Centre said packagers were increasingly abandoning traditional sub-prime and non-conforming sectors for the prime market in an effort to increase company turnover, but this had not necessarily led these companies to increase their profitability.
The Finance Centre reached its conclusion through examining 117 limited company packagers that posted annual accounts at Companies House.
The search revealed 70% of companies recorded an increase in turnover during 2001, yet less than two out of 10 companies posted a trading profit.
John Mawdsley, director of packager The Mortgage Partnership, said: ‘Packaging companies are usually owned by the directors and they can decide to show as much or as little profit as they want to. I don’t think you can draw the conclusions that The Finance Centre has drawn, from data drawn from Companies House reports. Benefits of scale in the prime market are well known in the packaging industry, and that scale varies from one firm’s situation to the next. If you attract the right amount of business, there are benefits to be drawn.’
He also said the original packagers in the country began in the prime market as there were no sub-prime products around. As a result, a lot of established firms have built themselves on prime business.
Stuart Glendinning, marketing director of Mortgage 2000, said: ‘Regulation and electronic trading will result in consolidation of the market, leading to a fight to increase market share and a move to prime packaging. Prime cases may pay less in fees, but they generally involve less work and I don’t think that can be construed as negative.’
Tom Gurrie, national sales manager of The Finance Centre, said: ‘Our advice to packagers is to stick at what they know best and not go for volume at the expense of profit. Such a move could affect their financial health.’
Of the companies surveyed, 16 had a turnover in excess of £1m, with an average turnover of £430,000. Of those that made a profit the highest was just over £1m, while the average was £163,000.