This week saw speculation that Tesco was considering selling off its banking division, having already exited the mortgage market a couple of years ago.
Brokers told Mortgage Solutions that while it might appear having a well-known brand, such as that of a major supermarket, would be an advantage in the mortgage market, the reality is rather different.
However, some pointed out borrowers may be wary over using a lender they have never heard of, with both trust in the broker, and regulation of the industry as a whole, key in overcoming those concerns.
Treated with suspicion
Smaller lenders who aren’t particularly well known can “sometimes be treated with suspicion”, suggested Lewis Shaw, owner of Riverside Mortgages.
He noted that the fact that supermarkets came into the mortgage space with an existing well-known brand should have provided a natural advantage.
“However, they quickly realised it wasn’t for them and that making money in the mortgage market is not perhaps as easy as it seems,” he added.
Highlighting smaller lenders is satisfying
Richard Dana, co-founder and CEO at Tembo Money, said that many of his firm’s clients come to Tembo because they are struggling with affordability, so it is satisfying to be able to help them by recommending a lender they might not have heard of before.
He continued: “We work with a lot of the smaller lenders and also the innovative lenders like Generation Home and Livemore – who don’t have the consumer brand awareness of lenders like HSBC. We often find that the service from the new lenders is incredible, with really quick turnaround times and very responsive customer service.”
Riz Malik, director of R3 Mortgages, said that recognition of lender brands is not as important as it once was, noting that clients “are more concerned with finding a cost-effective solution to their financing needs, particularly in the current economic climate”. He added that most people are aware that lenders have to meet certain regulatory standards, and take comfort from that.
Brand only matters when it’s got a poor reputation
There is no shortage of lenders with little to no direct consumer offering, pointed out Scott Taylor-Barr, financial adviser at Carl Summers Financial Services.
He suggested that generally clients have no issue accepting the recommendation of a lender they have not heard of, but suggested this may be partly due to the fact that they are taking money from the firm rather than storing their savings with the lender.
“A bank’s brand is maybe more important in the savings market than in the mortgage market. The only exception to this will be when a brand builds up a negative public perception; there’s very good reasoning behind why Virgin Money and NatWest are the brands still in the market, as opposed to Northern Rock and Royal Bank of Scotland,” he concluded.
Service and price are more important
There is little correlation between brand awareness and business levels, according to Sebastian Riemann, director of Virtus Private Finance, with service, pricing and criteria the important factors.
This was echoed by Dana, who said: “If you are a lender and offer superior customer service, good criteria and attractive rates, the brand name is not that relevant.”
Riemann added that the only times he encounters wariness from clients over a lender recommendation is when they have had a poor experience with that lender in the past.
A question of trust
Anil Mistry, director of RNR Mortgage Solutions, argued that it’s easier for brokers to recommend brands that the client is already familiar with, but suggested that building trust with a client can override any issues with such wariness.
He explained: “Building that trust is vital and it will then make it easier for them to accept the smaller lender.”
Dominik Lipnicki, director of Your Mortgage Decisions, said that while niche lenders might “look unfamiliar” compared with the high street names, the fact that all lenders have to abide by the same rules and regulations provides borrowers with “much needed peace of mind”.
He added: “Many borrowers also realise that spending millions on branding and perhaps a high street presence does not necessarily mean best value. In my experience, if there is an initial wariness with clients, once a proper conversation takes place, any worries quickly dissipate.”
It also “calms the nerves” of borrowers when brokers can point out that a lender is the intermediary arm of a well-known name, like Accord with Yorkshire Building Society, according to Jane King, mortgage adviser at Ash Ridge.
King agreed that being able to point to regulation is also useful, and suggested that branding is not really important to borrowers any longer.
“I think it used to be important, but not anymore. We are being told constantly by the media to shop around, so I think most of us have this mindset now for everything, including mortgages,” she added.
