Tony Machin, group managing director of Freedom Finance Group, has seen the market enter periods of significant change, including mortgage regulation, the entry of the American venture capitalist and a steady increase in the secured loans market. But these triumphs of the past seem to pale into insignificance as he describes his world before that of financial services.
“I come from an odd background in terms of traditional entries into the market,” he explains. “I started life in the army, and found myself getting commissioned at the age of 18, spending twelve years doing various things. It was an interesting experience that took me from being a troop commander in Germany, taking an in-service degree, commanding a unit in Norway doing Arctic warfare and a stint in the bomb disposal regiment.”
His last job was as the military assistant to the American General who planned and executed NATO’s first ever land operation in Bosnia, and he was then involved in the ‘lessons learnt’ exercise, which was a document running into tens of thousands of pages. Presumably then, he was not fazed when he saw the Mortgage Conduct of Business rules, having finally made his way into financial services.
Machin made the move away from the military, as many do in the army, when he got married and had children. He says: “I woke up in Sarajevo one morning and thought… I can work hard doing other things – and that’s exactly what I did.”
Having decided to leave the service, despite being “army through and through”, he decided to focus on the finance market. Taking his future in his hands, he wrote to various banks, including Rothschild’s, where he was offered a job as a corporate finance executive, and stayed there for three and a half years.
He remembers: “I suppose the culmination of that transfer from the army to the commercial finance world was that I advised Rupert Webb, founder of Freedom Finance, on the majority sale of his business to JZ International. That was my first transaction that I ran by myself. I was then asked to join them in July of 2000. And that is how I joined what was then Wilmslow Financial Services.”
The company subsequently re-branded in February 2001 as Freedom Finance, and the Group is now comprised of Freedom Finance, Freedom Spain, Freedom Sweden, Freedom Ireland and Mortgage Next. Freedom Finance is a national finance broker, while Mortgage Next is a regulated mortgage network for appointed representatives (ARs).
Interesting proposition
Machin recalls: “Freedom Finance Plc had developed but we wanted also to build a pan-European financial services group. We were pretty under-represented in the mortgage market and we were very specialised. So we needed to make that move – this was pre-regulation. We knew there would be some new dynamics post-regulation and as result, we needed to be bigger in the mortgage world. Therefore, this led us to the majority stake acquisition of Mortgage Next. At the time, everyone was thinking of directly authorised and AR propositions. We bought into the concept pre-regulation. In this market, you need brand, reputation, credibility and Mortgage Next brought us a lot of that. Mortgage Next gives access to the same consumers but through intermediaries.”
Has it evolved as quickly as he would like? Candidly, he says perhaps not, and claims this is a product of regulation. Machin believes there was a significant period for many when regulation was still taking hold and advisers were getting used to life under the FSA. But he adds: “At Mortgage Next, quality has been key. A lot of people count numbers – especially with the number of ARs, and league tables. But the main thing is what is the quality like, what are they doing and is it profitable? Never mind the numbers. What is the expression? Turnover is vanity and profit is sanity.”
As well as the network proposition, Freedom also set up its own lender – Freedom Lending. Again, the concept was embryonic before regulation, and once Mortgage Day came, Machin realised the importance of creating relationships between intermediaries and lenders. He says: “When you command so much distribution, as brokers, you are beholden all the time to your lenders. At regulation, margins were put under pressure. We decided a way to understand the dynamics of lending was to be a lender ourselves and we set up Freedom Lending. It was a huge success, but actually very little of its distribution came from Mortgage Next or from Freedom Finance.”
But along came an “extremely attractive offer” that Machin and his team felt they could not turn down. Freedom Finance was sold in July 2006, and this left a gap in their proposition. However, Machin confirms that this is being addressed. “You will see at some point in the not too distant future a lending proposition that will focus exclusively on second-charge lending. We are a small lender already, we do some balance sheet lending, but in terms of large scale lending, we will certainly do that later this year.”
However, Machin stresses that he is not looking to take business away from the existing panel. “The economics are such that it is not worth doing that. But we certainly need to have a product that we can design for the distribution market which is similar to what the intermediary market is used to – that is, exclusives. So what we plan to do is to take a secured loans product and present it like a remortgage, so that it works in terms that the mortgage market is used to talking about, using its language. We could package up the secured loan so, for example it has a key facts illustration and there are exclusives There are certain simple things we can do. And having control of our own product will help to bring a more attractively presented product that mortgage brokers can understand as well as secured loans specialists. Clearly, we are talking to a fair number of other people apart from Mortgage Next, although Mortgage Next will inevitably be our launch pad.”
As well as launching its own lending proposition, Freedom Finance is focusing on other European countries. Freedom already has a mortgage proposition in Spain for nationals, not ex-pats, predominantly a remortgage proposition with about 200 in-house staff. Inevitably, there are many requests for Freedom to also provide Spanish mortgages for ex-pats, but at the moment it is not one of Machin’s priorities. “I would not want to take our eye off the ball,” says Machin, predictably.
Freedom has also acquired a small business in Sweden. In fact, when it launched with four people, it was labelled the largest broker in the country, according to Machin. Sweden is a country that Machin is very interested in. He says: “We were the catalyst for sub-prime to come into Sweden. In terms of getting acceptance there, conversion figures are ones that you would die for over here. What they are not good at though is marketing the broker model – we brought that expertise to Sweden.”
Machin confirms that a business was bought in Norway this February and that Freedom is evaluating options in both Denmark and Finland. It is also in the midst of buying a business in the Republic of Ireland. The Irish project will be a remortgage proposition. Freedom has already tested the business with a partner in the region. Machin says: “Once we got all our information, and having spent a lot of time looking for a partner, we decided that we are much better off buying a business on the ground. There are lots of businesses out there, but finding one with the right attitude or fit was tough. We have now found the right fit and we are going through negotiations. If everything goes to plan, we will announce something in the next three months.”
Being such a Europhile, it is no wonder that some accuse Freedom of not showing the same dedication to the UK market. Machin responds: “The UK is still a very strong and attractive market. It is a very competitive, mature sector and for all the right reasons, a highly regulated market. This is not to say that you can go to other European countries and exploit lighter-touch regulation, but it is all about different cultures. Sweden does not have the culture of ripping customers off – but that may change with the introduction of different products. The UK market is still strong and we are still expecting some strong growth.We are not getting back into lending for the good of our health. The market is changing, it has become more professional and competition has focused people’s minds.”
Secured future
The evolution of the secured loans market also plays heavily on Machin’s mind. He says that although the regulator has stepped back from regulating this sector, processes in Europe, including the Mortgage White Paper, may change that. He speaks from his experience sitting on the board of the Association of Finance Brokers, sister body to the Association of Mortgage Intermediaries.
He says: “Interestingly, the UK is the only country in Europe that has a secured loans market as we know it. If you go back to the long-term vision of the group in the sector, and where the regulatory framework may go, this will help us exploit the fact that mortgage brokers are becoming more closely aligned with secured loans. I have been involved with this debate for a long time and this is a slow-burn thing. We have been quite deliberately slow in pushing what we would call a market leading secured loans proposition.”
Freedom Finance has its own secured loans automated decision making system, which was designed and is operated internally. But this will be taken further.
Machin explains: “Our idea is to take it to the wider market. The first test bed for this will be Mortgage Next, clearly. But ultimately, why could this not be done for mortgages too? Our business is not about secured loans and mortgages – it is about finance. For example, at one end of the spectrum, we might get a customer looking to raise £50,000 who comes to us as a secured loans customer. Now every customer that comes in over a certain loan value gets mortgage advice too, because we think that is the right thing to do. The question is, where is that line? Is it £25,000, £30,000? But also, at the other end, we have lots of customers, especially from our high street bank partners, who are not necessarily secured loan customers, looking for £8,000 or £5,000. There are unsecured products out there that may be more appropriate for these customers.” He envisions a system that distributors can use to aid the decision-making process while providing speed, accuracy and compliant guidance.
Ultimately, Machin is looking to build a proposition around a group of businesses with an undertaking encased in credibility, supported by a good brand and a solid reputation but also with a common technology platform. “That allows us, no matter where the customer has come from, to give them a quick answer across multiple products, to give them – the broker or the direct customer – a choice. We need an intelligent system.” And that intelligent system looks as though it is going to start with Machin’s military wisdom and precision. n
