Jonathon Whiteley: Do mortgage clubs and networks have too little or too much influence on the market?
John Malone: Obviously if you bring together 15,000 intermediaries with your collective bargaining, then there is no doubt you have a lot of influence. Is it too much? I would say over the last five or six years we have been a breath of fresh air for the lending fraternity and we have helped advisers achieve some reasonable procuration fees and decent products. I think we have also been influential and instrumental in assisting the regulatory side of our industry.
Martin Maynard: Over the last few years in particular we have seen mortgage clubs and networks use that influence to a great extent. There is some good evidence we have moved away from products that are just mere tweaks to high street and mainstream products.
Sally Laker: As well as the benefits we offer the individual broker we are also able to offer the lender feedback information, so at times if they want to pilot something they can test it before adding it to their mainstream product range.
Steve Hoare: When you are talking about negotiating products and procuration fees it is not only the brokers who are benefiting, it is also the end user, the client who is benefiting from better products.
Nick Baxter: Clubs should negotiate products to benefit the consumer rather than their members. Sadly not all these exclusives at the moment are based on a better product for the consumer. Many are designed to increase the cost for the consumer just to provide a bigger fee for the introducer.
Jonathon Whiteley: Has there been an abuse of influence by any of the clubs or networks?
Nick Baxter: I think the abuse is more from the lenders. That is where the added value is questionable. Many clubs will expect the lenders to do their marketing for them and there is too much influence in that area.
John Malone: Is that in a certain sector?
Nick Baxter: No, at the moment lenders seem happy to fund absolutely everything. I question how much longer that will continue.
John Malone: There is also the issue some of us have, called reputational damage, so I can assure you from Prudential at no time would it be trying to achieve what you have just said. Prudential’s reputation is worth more than trying to introduce that kind of arrangement.
Nick Baxter: I am pleased to hear it. I think lenders’ mortgage clubs need to look closely at exclusives to ensure their customers are not being disadvantaged.
Sean Hornsby: The majority of lenders will tell you that the majority of exclusive products do not sell. There are far too many exclusive products in the marketplace. I think where mortgage clubs have benefited the market is more to do with the fact they have improved lenders’ pricing. I think through bulk buying, lenders are under pressure to offer exclusive products to a number of players.
Andy Young: We have found exclusives in the niche areas to be more successful. We have influence with lenders to drive better deals for consumers ‘ that is the way the Misys model is set up. Misys would not influence where that business is ultimately placed because many advisers now use sourcing systems.
Jonathon Whiteley: How should you be working together with regard to regulation?
Sean Hornsby: I see the role of the club as a potential voice on behalf of intermediaries both to the Financial Services Authority (FSA) and to lenders. I think the role of the network is somewhat different.
Nick Baxter: The Mortgage Code Compliance Board (MCCB) has always worked closely with clubs and networks. They have effective feedback sessions. My first thought is that the FSA probably will not have such a detailed structure as the MCCB. Until such a time it can be persuaded to have a mortgage adviser advisory group, the feedback will be on a more personal basis, rather than on a formal corporate ‘togetherness.’ I think we need to persuade the FSA that it needs a mortgage adviser panel.
John Malone: In the FSA’s eyes we have a regulatory responsibility. We have regulatory responsibility, but we also have a duty. Master brokers perform a different function, but quite often they are called networks although they do not take any regulatory responsibility.
Nick Baxter: People are trying to satisfy the same market in a different way. I think there will always be a market for those different models. Some brokers want compliance control; others want support. The FSA will have different input depending on the model.
Andy Young: We are waiting to find out more about CP121 and the impact it will have on the mortgage market. Once we know that, I think you will see a number of business models created to satisfy the requirements of the different types of distributor. People like networks because they have the infrastrucure to meet the demands of the mortgage market.
Jonathon Whiteley: Will brokers be forced to join networks?
Nick Baxter: It depends what costs the FSA comes up with. Once those costs start to escalate, particularly their clients’ costs, then there may be a cost benefit to joining a network where responsibility is taken away from them for compliance.
Martin Maynard: This also poses a dilemma for lenders. There will be many advisers who channel their business through panels and some are larger than they used to be. That will leave a lot of specialist lenders and building societies. I do not think many lenders have thought of the implication for their own business model. Some of the people they deal with will disappear overnight.
Steve Sandiford: Within our group it is very high on the agenda.
James Rodea: We do not know what the costs will be, but we see it as an opportunity. Many brokers are not going to survive ‘ the costs will be too much ‘ and we will be looking to pick up affinity partnerships with these brokers who will do the business through us. It will be good for us.
Sean Hornsby: There is an opportunity for a lot of organisations to take advantage of the situation and grow their membership. It is important some of the people around this table and in the media ensure a balanced view is presented. I believe there will be a lot of brokers who join networks totally unnecessarily because they are ‘scare-mongered’ into doing it.
Nick Baxter: It comes back to the model they choose. They need to be informed.
Sean Hornsby. We saw it with CP98 ‘ prior to CP98 there were some organisations using unnecessary tactics to increase their membership. I think it is a very important time for our industry and we need a balanced view.
Jonathon Whiteley: The number of brokers will probably decrease over time due to regulation, so are there too many clubs and networks in the market?
Phil Green: I think we are entering into a culture that says ‘big is beautiful.’ I think we will see a lot more acquisition and consolidation moving forward, not only in the intermediary market but also the lending fraternity.
Sean Hornsby: The market is big enough to sustain the current numbers, it is whether or not the current numbers can do enough things differently to offer a choice.
Jonathon Whiteley: Should the FSA be issuing formal guidelines about networks?
Sean Hornsby: It is up to the industry as a whole. I do not want to see a lot of smaller brokers forced out of the industry because they do not think they can survive unless they join a network, when in fact if the costs can be met there is no reason why the brokers who are around today cannot be around tomorrow. We do not want to see them walking away from the industry simply because they have been mis-informed.
Steve Sandiford: I think that is a danger. I am not particularly hopeful things will be laid out clearly and quickly enough so they can make an informed choice. The FSA has a responsibility to make it clear and easy for people to understand.
Jonathon Whiteley: What do you think will happen if the market slows down?
Andy Young: Lenders will be hungrier to maintain market share so they will probably become far more proactive in wanting to strike deals with the major introducers. I would imagine more targeted product campaigns, driven more by lenders rather than networks.
John Malone: We are all expecting at some stage in the near future that the lifetime mortgage market will increase quite significantly and there will be an increase in remortgaging. The first and second-time buyer market might slow down, but I do not think it will be across the board.
Steve Sandiford: I think that is where lenders now are building their partnerships with the various clubs and networks. They can work with those people to stimulate the business in the right direction. That is where the winning lenders will be operating.
Phil Green: A lot of lenders take a great degree of comfort dealing with the advisers who supply them with volume and quality. Certainly there are other areas of the market that have yet to be tapped ‘ equity release and shared ownership are areas that will help keep the market buoyant.
Andy Young: I do not agree. If the housing market cools because interest rates go up next year, it creates greater opportunities for remortgaging.
Steve Sandiford: I think you will also see more innovation from the lenders and their introducing networks and clubs.
Martin Maynard: I agree with that. Part of the inevitable service will be improved delivery, improved processing and technology, moving into the electronic trading area as well. That will be more of the focal point over the next 12 to 24 months.
Phil Green: Certainly as margins are being squeezed on products, lenders will be looking to provide a better service than has hitherto been the case.
Sally Laker: When the market starts to turn down we will see the return of the fixed rate. That is something that always comes back into its own if there is a downturn in the market.
John Malone: I am seeing the reverse. The likes of Hargreaves Lansdown are entering the market ‘ investment specialists. There is more to come from that side of the market looking to say, ‘well, we now need to get a share of this market.’
Jonathon Whiteley: Could you all share your thoughts on what you consider to be the future role of clubs and networks moving forward?
Steve Hoare: It depends on what the introducers want in the long run. We do not have an active trade body and it is something we need to think about. Brokers need to feel they are part of something. That is where the umbrella organisations will come into their own.
Steve Sandiford: I think regulation is not necessarily something to be frightened of. I think it is an opportunity for us around the table to develop something I think the mortgage industry lacks and that is credibility and respectability.
Sean Hornsby: Some lenders will have an affinity towards certain networks and clubs. I think there will be a lot more freedom within the regulatory framework than some people are suggesting.
James Rodea: Lenders will chose their partners more carefully and build up relationships that way. It will lead to tighter networks.
Martin Maynard: I think the key words for the future are rationalisation and partnerships. There will be a smaller number of bigger networks playing potentially a more influential role. Possibly there will be a coming together of some clubs with lenders.
Sally Laker: As long as we provide enough choice in terms of distribution, particularly from the regulation aspect, I think we will survive.
Nick Baxter: It is particularly exciting that there are so many different business styles beginning to emerge to satisfy mortgage brokers’ needs. Those that will flourish are the ones that satisfy all their investors’ needs ‘ their members, their stakeholders and their lenders.
Alex Broad is editor-in-chief