This year, Freedom Lending launched a teaser campaign and finally released its new name, Wave, in June. Behind the big tease was Colin Snowdon, chief executive of the lender who believes that brand is a very important commodity in today’s market.
The change of name was not a choice, the lender was contracted to this move following its sale to Merrill Lynch last year. Snowdon says: “Brand is very important. I think it is a lot more than a name. The brand has got to represent what you are in the market. We have clear and discernible values – we believe in relationships and partnerships, creating those partnerships and treating our brokers fairly. We give a very personal service and have a well developed personal service proposition.”
Snowdon, who has been in the mortgage market for over 20 years, laments that quite often service has taken a back seat as technology has usurped its importance. He comments: “You do not necessarily get a personal service all the time in the mortgage market. Quite often technology is something that is pushed at intermediaries almost as an excuse for not giving a proper service. We recognise the importance of technology and intend to play catch up, but we believe many lenders push technology and provide a poor service – you can get a quick answer but there will be no follow through.”
Snowdon admits that Wave needs to think about its technology proposition as competitors already have had a head start. But he does not want to rush into anything. He adds: “We have to be careful we do not copy some of the lenders in the market. We have to be careful we do not throw the baby out with the bath water. Technology has to support our service proposition.” Snowdon is certainly not against the point of sale offers available in the market, as it is still early for days for Wave.
Although Snowdon is looking firmly to the future with Wave, his background is of a student of the past. He was a history graduate from Birmingham who wanted to be a history lecturer but realised there were not many of those jobs available. So he found himself working as a graduate trainee at Lloyds Bank. He moved around, with notable careers at National Home Loans, The Mortgage Business, which he set up when he joined Bank of Scotland, and he was also part of the intellectual managerial start-up team behind Verso. He left in 2002 and in 2003 joined Freedom, following his previous trends by launching another new lender, Freedom Lending in mid-2004.
Launched with no sales team at all for the first 12 months, its first securitisation was worth a modest £25m with the Cheshire Building Society. But then Freedom Lending began to forge a relationship with Mortgages Plc, which had just been bought by Merrill Lynch and was therefore keen to buy assets. A monthly flow agreement was entered into, and as relationships grew, so did the interest in Snowdon and his managerial team. Freedom Lending was bought in 2006.
Suitable parent
No stranger to launching and merging businesses – Snowdon had seen the Verso / Platform merger – he was keen to make sure that Merrill Lynch would be a suitable parent for the lender. He says: “Merrill Lynch assured us its strategy was to buy management teams rather than to just buy businesses and make them anonymous. And it has been true to its word. Merrill Lynch has encouraged us to invest in the business, to grow the management team.”
When Freedom Lending was bought, it had 65 staff and now has about 135. Snowdon hopes that by the end of the year it will probably have 180 staff. In its first year, it lent £125m, second year £252m, third £477m and its objective is to lend £1.5bn. “You can not do that much lending in the market which is as challenging as the current one without proper backing,” he adds.
But what does the broker market want from a lender today? “Fortunately being in a diverse market, brokers are also a diverse community themselves, and different brokers want different things. Working in partnership with brokers, we certainly are not fleecing our distribution, not using it, in the negative sense of the word. All lenders would say they do not do this either, but I am not sure all brokers would agree that is true.”
So, the personal touch is important to Wave but what about personality? After all, Mehrdad Yousefi, former head of intermediary mortgages at Alliance & Leicester (A&L) is joining the lender this August. He will be responsible for developing the lender’s distribution strategy and managing its team of business development managers. Snowdon says: “Yousefi is a big hitter and would not have left a big organisation like A&L if he did not believe he could be a big hitter with us too. The challenge there is to get our message out about our proposition to more brokers – not enough brokers know about the service we can give.
“I think personality is of crucial importance, particularly when you talk of distribution. We would be fooling ourselves if we think the big personalities are what make brokers sell our products, but I do believe at distribution level personality and relationships are crucial. There are some larger than life personalities in our industry who like their own voices but there are different kinds of personalities too. Yousefi is well known but not arrogant and that is a good fit for our organisation. He also joins a very well established management team who have worked with each other for many years.”
Yousefi joins Snowdon’s team in what he believes is still a buoyant market. “It is still a bright future for the intermediary and packaging community. I have never subscribed to the view that the day of the packager is nearing its end. All those predictions of gloom and doom through regulation have been proved wrong. The market is underpinned by demand – we have an ongoing housing shortage in the UK. However, the market is going through a rocky period and it is becoming increasingly important for lenders to think carefully about product development. We have been through a period of about two to three years, where frankly any lender could come into the market and do anything and apparently succeed. It is a tougher time now, and I believe some lenders are doing things now that are sowing the seeds of problems in the future. That does not hold any fear for me as with an experienced team, we could pick our way through this quite well.”
The overwhelming bulk of Wave’s business is prime buy to let and self-certification although it is very keen to improve its levels of near-prime. It has no plans to enter the adverse sector – it is happy to leave this to sister company Mortgages Plc.
Snowdon admits that the buy-to-let market is starting to mature and some of the trends emerging in the sector are worrying. He says: “We for example are interested in affordability and have a rental and income product where we allow borrowers to combine surplus personal income with rental income – a proposition which we will strengthen in the near future and ‘make it ours’. The product is a response to falling yields, interest rates going up and the time lag for landlords to pass on rental increases. But some lenders are going down the non-status route, which is to say that some lenders do not care about rental coverage which I think is very dangerous. What is the buy-to-let market? What is it about if it is not about rental coverage?”
Similarly, Snowdon, a stickler for compliance and regulatory issues, is concerned with self-certification and fast-track. The lines, he thinks, are being dangerously blurred here. He comments: “Along with the regulator’s concerns, we have regrettably seen some brokers and networks discourage their appointed representatives from selling self-certification. I think the problem is you get the law of unintended circumstances. They do not go full-status but go fast-track. This is a developing issue for the industry. Mainstream lenders need to look very carefully at fast-track.”
Snowdon admits that almost every prime self-certification lender has witnessed their volumes falling in this sector, which he is convinced is down to some brokers going down the fast track route. “Self-certification volumes at Wave have been steady in terms of absolute volumes but have not been growing. It is difficult to know what to do about this other than compete on rate.”
Niche ambition
Wave is keen to look at other niche areas to look into. Many expect Wave to launch into secured loans, as Snowdon gained some experience in this sector while at Freedom Group.
He says: “In the Freedom days, we did consider becoming a secured loan lender. But the market now has got more than its fair share of challenges, not least of which what will happen to single premium mortgage payment protection insurance, and that product has supported the industry from a profitability point of view for years. It is a really tricky situation – most brokers and lenders realise it has got to go but there is a bit of a stand-off. It needs the regulator to change it over night. This is not a sector we will go into at the moment.”
Another area that Snowdon is interested in looking at is equity release. “We would not look to do huge volumes but it is a market which is coming, and has to simply because what has happened to pensions and wealth in old age. There is a huge, looming pension problem and we have a population increasingly property rich. It does not make sense for people to live in penury when they have all this property. It is a question of time for this sector.”
He is also interested in affordability for first-time buyers and is keen to look at shared ownership and shared equity schemes but “this does not mean we will go into the Government’s product – it has an issue of funding. There is a problem with them not being sold properly. I do not mean there is any mis-selling but there needs to be an education programme. As lenders, we need to identify distribution for it”. Despite Yousefi launching a 100%+ product before leaving A&L, there are no immediate plans to enter this sector, but, like any good lender would say, Snowdon rules nothing out.
But will Snowdon pick up and go seeking another challenge now that Wave has been relaunched? He certainly has a certain amount of success in creating new start-up lenders. He answers: “I have given myself and Merrill Lynch some timescales in which to make this business succeed and I do not want to leave before then. This is where I will be for some years to come.” n
