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A game of two halves

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  • 13/07/2009
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The first six months have not been great for the market, suggests Phil Whitehouse - but things may be better in the second half

A key topic facing the mortgage industry, both last year and this, has been the subject of lenders’ differential pricing of mortgage products. Even in 2008, this type of pricing was nothing new, and had been used mainly in favour of brokers before funding issues began to alter market conditions. Now that the pendulum has swung the other way, the dual pricing issue greatly concerns brokers and it would be remiss of me not to touch on this subject when looking to review distribution so far in 2009.

I have heard it said that when this differential pricing is reduced, brokers ‘will not forget’, and will tend not to favour the lenders that appear to have been actively bypassing the broker market.

This attitude towards lenders may only last a short time, because brokers have a duty of care to find the best possible product for their clients and so will be unable to ignore customers’ needs if lenders have great products and services available to them. Lenders realise this, but it will be interesting to see how the distribution market reacts to these lenders in a market where competition returns and lender rates are similar.

Back in the beginning of 2009, the intermediary market took its first hit of the new year with the announcement by the Bank of Ireland that it was no longer accepting new residential business through intermediaries. While this was not a massive shock, the tone it set for the year did not bode well.

This announcement was soon followed by something of a double-edged sword from Woolwich, which announced that it planned to increase its share of the intermediary mortgage market in 2009, but had devised a form of tranche management that had significant teething problems. The Woolwich plan was to give daily tranches to a range of distribution channels and brokers to try to eradicate any service issues and control lending volumes.

Woolwich received a mixed response to its tranche distribution system from intermediaries, but it is positive that such a big player in the market is still lending. Education is paramount to such innovations running effectively and Woolwich has made tweaks in response to the adverse feedback that it received. This should be commended as the whole market has to get used to a different way of working to get around the continued effect of funding and credit problems.

Lending institutions of all shapes and sizes have undergone some major changes in the first half of the year, and the sector of the market that has been affected most is that of the building societies. As reported by the Building Societies Association, gross mortgage lending by the mutuals was £1.5bn in May, compared to £3.5bn for the same period last year, a 57% fall. The problems affecting the sector are also demonstrated by the recent closure of Astra Mortgages, the intermediary arm of Norwich and Peterborough Building Society to new business for the ‘foreseeable future’.

There is no getting away from the economic issues which are affecting the whole mortgage market. Unemployment continues to rise along with the UK’s debt levels, and the housing market continues to stagnate despite some promised ‘green shoots’. The result of all these factors is a lack of confidence and a continued lack of funding that shows no sign of going away in the back half of 2009.

Abbey has also been heavily in the news after parent company Santander revealed that all UK Abbey, Bradford & Bingley and Alliance & Leicester branches will adopt the Santander brand and name from Q1 2010, but it will retain its specialised-market brands, including Abbey for Intermediaries. For its specialised-market brands it will retain the existing names. These include Abbey for Intermediaries, Cahoot, Cater Allen, James Hay and the international businesses of Abbey, A&L and B&B.

Another major talking point was the move by Lloyds TSB to streamline its broker offering by channeling all business via Birmingham Midshires, Cheltenham & Gloucester, Halifax and Scottish Widows. C&G’s 164-strong branch network will close in November as the division focuses on building its significant mortgage intermediary businesses.

In total, up to 1660 full-time jobs will be affected by the changes at Lloyds Banking Group. The BoS, Halifax and Lloyds TSB brands will all continue to operate on the high street, providing new mortgages and a range of other direct-to-consumer financial products. Later this year BoS – which currently provides Halifax-branded mortgages on the high street – will provide BoS-branded mortgages. This was no huge surprise, as the precedent had already been set with a number of large banks merging to find cost savings where there is branch duplication.

As a result, there may be a levelling out in the standardisation of the company’s lending criteria and certain risk routes being pushed out of the market. There may also be some negativity which will certainly not help boost an already stagnating housing market. In addition, some concerns may be raised over a possible reduction in the autonomy of different underwriting quirks, as traditionally lenders within the same group still have underwriting and processing differences. It will also be interesting to see how the respective sales teams are structured as one team selling all will face its own challenges.

Only time will tell how Lloyds will address these issues, but fortunately, brokers are used to change in the market and will be quick to adapt to whatever brands remain to use them as best they can for their clients. This will, however, depend on good marketing and communications so brokers know exactly which brand offers what and these challenges, among many others, are ones that Lloyds must address quickly and ensure that it gets them right.

Looking to the future

In the second half of 2009, there will be no getting away from the challenges that lie ahead. Brokers will continue to feel vulnerable as they remain open to economic problems, lending issues and regulatory factors. Firms will try to review their regulatory status and as consolidation persists it is vital they place great emphasis on choosing their strategic partnerships and affiliations wisely. Well backed, structurally sound, professional and well-supported firms will remain in demand as the flight to quality becomes even more pronounced.

New clients will also continue to be hard to come by as they are becoming better informed about their financial situation, and existing clients may be difficult to rebroke due to lending restrictions. However, before we disappear fully into the pit of despair, it is important to note that not everyone is suffering and there are regional pockets of brokers who are actually doing quite well. This is especially the case for those dealing with high net worth clients and as previously mentioned there is a continued flight to quality for those brokers that have embraced a more holistic approach to the advisory process.

It is not by chance that it is those intermediary firms who have re-evaluated their business models that are not only surviving but are also picking up extra business in other areas of the industry. Technology has played an important part in helping them do this. Some firms have taken the hard decision to invest in technology, such as client management systems, to make them work smarter and more efficiently.

Such systems have evolved in a similar way to sourcing engines, which have developed to become more than the simple reference tools of old that can save valuable time across a range of sectors and become a key component in the sales process. Client management systems are undergoing a similar evolution as the need to manage existing clients, improve efficiency and follow regulated and documented sales processes becomes of paramount importance. While this may not be applicable to everyone there are often ways in which to use technology to help streamline business activity and therefore maximise time efficiency.

It is vital to keep positive as there are opportunities presenting themselves via a host of ancillary products and honing sales techniques. There has never been a better time to sit down with existing clients and explore the range of potential opportunities, especially in the protection and GI markets, as vast numbers of people are currently underprotected and underinsured. Working existing databases should be the prime objective for brokers who are struggling with current market conditions. Brokers that take clients’ wider financial needs seriously will undoubtedly place themselves in a stronger position and cross-selling will not only generate attractive recurring revenue but also help turn them into a one-stop shop for clients.

It can be daunting but support is out there particularly for directly authorised firms in the form of trade bodies, mortgage clubs and a number of outsourcing opportunities.n

Phil Whitehouse is head of The Mortgage Alliance

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