Michael Clapper’s approach to the mortgage market has been different to most in that his model is built on constant evolution and actively trying to spot the next opportunity rather than focusing on growing one area. As such he owns one of the few firms that is continuing to expand through the current downturn. For Clapper, there is little to look back on in order to learn from past mistakes, as he has spent his entire career looking forward.
He said: “The key for me is to look constantly to diversify. I have always tried to look ahead as far as possible in order to be in a position to take advantage of what will happen. I have not always got it right and have missed out on a number of opportunities but I have got it right more often than I have got it wrong. I have kept the traditional business ticking over though through this latest downturn, and hopefully this will leave us well positioned to take advantage when the market starts to come back.”
Working his way up through Cornhill in 1995, Clapper founded Enterprise Mortgage Specialists as a standalone business to introduce more mortgages to him as an appointed representative. This enabled him to become the top producer for Cornhill nationally, and as a result was headhunted by Allied Dunbar.
While at Allied Dunbar, Clapper became aware of the rapid growth in sub-prime mortgage business, and the fact that many advisers he was working with were unsure of how to deal with it. So in 2000 Clapper started recruiting a practice of advisers and administrators, in order to launch a packager – Enterprise Broker Services – which he then tied in to Allied Dunbar to help its brokers place the more specialist and sub-prime deals that they could not place with the high street lenders.
In 2001, Clapper launched Enterprise Finance Ltd, which concentrates on second charge mortgages, bridging loans and commercial finance. And shortly after this he launched Enterprise Debt Solutions in partnership with Grant Thornton.
In 2004, Zurich became Openwork, which kept Enterprise as a preferred packager, but as a safeguard Clapper also tied up deals with Thinc, Home of Choice, Mint, Sesame, and Intrinsic.
As the business grew, it became harder to provide an audit trail on all the cases that were coming in. Clapper said: “At its peak, we had 25 lenders and thousands upon thousands of products to sift through, and the sourcing systems that existed were not able to cope. So I decided to build our own platform and we launched Edge in 2006. Having our own custom-built sourcing system took the time for each case down from a couple of hours to a couple of minutes.”
Following on from this, the next logical step was to build a system that could cope with lenders’ individual decisioning systems, as it spelt the beginning of the end for the traditional packager. Edge 2 integrates with lenders’ decisioning systems, so that brokers can search and apply without re-keying data.
Then came the credit crunch, which had a huge impact on volumes in the business. Clapper decided that market consolidation would get worse and as well as launching Edge 2 as a whole of market proposition, he launched a tweaked version direct to the consumer in June this year through the Daily Express. The highly qualified leads from this are being sold back to the networks, and they only pay for them when they complete.
In terms of products, his experiences of the last 17 years in the market suggest that the next few years will see lenders going back to basics. He said: “Lenders appetite for risk and high volume lending is much reduced, so we will see a return to old-fashioned income multiples, lower LTVs and sub-prime – if it ever comes back – will not be around in the form we have known it. I believe it will be based on ‘recency’ of the borrower’s problems and the reasons behind them. If lenders are to help out with these specialist products, then they will have to ask these questions and draw up products accordingly.”
As someone who spends a lot of time looking at what the future will bring, Clapper believes the market is going to come back sooner than many economists are predicting. He points out that with the cuts in interest rates now having an effect on Libor, we are starting to see products coming back.
He said: “There are now some products being launched with low rates, a reasonably high fee and low loan-to-value (LTV). But when we see a lender come back with a 95% LTV product for first-time buyers, I believe this will be the beginning of the end for falling house prices. This will be the first deckchair back on the beach. But I can see the only lenders able to do this will be those with Government backing, and they may only do it because the Government insists.
“Last time, the downturn was interest-rate driven. People could not afford to stay in their homes and it spiralled. This time, it has been caused by restrictions in lending. When lenders have achieved their Tier 1 capital ratios, they will start lending again. It will take a while, perhaps until late 2009, but when lending comes back confidence will return, recruitment will increase and the market will come back.” n
Michael Clapper is chief executive of Enterprise Group
