There is a growing belief among the British public that as far as the problems of the housing and mortgage markets are concerned, lenders are guilty of three offences. First, they are at least partly responsible for creating the mess we now find ourselves in. Second, they have no real interest in coming up with any solutions, and by far the most heinous crime, they are happy to boost profits while their customers suffer.
The reality is that many lenders are victims rather than culprits and suffer just as badly as borrowers, with profits turning into losses, thousands of jobs being lost and some companies being forced to shut up shop altogether.
It is unfortunate but understandable that consumers have developed an incorrect perception of lenders’ actions and motives, but it is disappointing that some brokers also believe lenders to be villains. I have read several accusations in the intermediary press that lenders are happy to ride roughshod over brokers and to turn their backs on business introducers who had played such an important part in lenders’ success.
Perhaps lenders are guilty of adopting tough strategies, but I cannot imagine that there are many, if any, lenders who have simply decided to abandon brokers altogether. Brokers are and will continue to be an important part of most lenders’ distribution strategies, and the issue which many lenders currently grapple with is to determine on what basis should their working relationships with brokers be developed in the future.
It is perhaps worth explaining how some lenders, such as West Bromwich, are addressing these issues because, having decided to temporarily reduce our new business volumes, it is not surprising that some brokers have incorrectly assumed we are not interested in them any more.
With the capital markets having effectively shut down and the housing market moving backwards, the immediate priority for most lenders has been to control lending volumes while maintaining the quality of their loan books. Controlling lending volumes has been particularly difficult. Not only is wholesale funding largely unavailable but redemptions of existing loans have dropped significantly as borrowers have found it difficult to move home or remortgage elsewhere, which has further reduced lenders’ capacity to lend. To compound the problem, if lenders continue to market products that are more accommodating than others in the market, they inevitably become inundated with new business. Unfortunately, that means products have had to be withdrawn or redesigned, re-priced and distribution very carefully controlled.
As recent news regarding both the Cheshire and Derbyshire Building Societies has confirmed, lenders are also watching their costs and profitability like hawks. For those with a branch network, they need to ensure that it earns its keep, which is one reason why lenders are making some products available only via this distribution channel.
The other reason is that a branch network enables lenders to tightly control volumes and quality of business, both of which are high priorities at the moment.
However, this should not be taken as meaning that branches will always be given preference over brokers in the future. At the West Brom, for example, we have considered our distribution strategy very carefully and have come to the conclusion that there is no reason to move away from a multi-channel model which includes branches, brokers, direct to consumer and our franchise business, Mortgageforce.
In the short term, however, lenders have little option but to respond to immediate business and market pressures. Lending volumes and quality have to be controlled and liquidity and profitability have to be maintained. Which means tough decisions have to be made which impact our staff, our customers and our distribution partners.
It is all too easy in such situations for people to come up with wrong answers, because perceptions and reality can often be very different things. Most lenders I speak to remain fully committed to intermediaries. Unfortunately, we all have to contend with a large number of issues at the moment and our actions are easily misinterpreted. n
