Henry Ford is reported to have said that “you can't build a reputation on what you are going to do”. This rings true in the intermediary mortgage market where competition is fierce and reputation rules.
The advent of the centralised mortgage lender in the mid-1980s was a real catalyst for growth in intermediary lending in the UK.
Indeed, companies such as The Mortgage Trust, The Mortgage Corporation, National Home Loans and Household Mortgage Corporation really changed the face of lending with the introduction of new funding techniques, innovative product design and procuration fees for intermediaries.
Most of these names no longer exist. Some have evolved into companies like Britannic Money and Paragon Mortgages but the principles remain the same – products and service that provide the mortgage intermediary with ammunition to compete with the high street and offer added value to clients.
In the late 80s, the challenge was to provide innovative products in the face of increasing demand for borrowing, rising house prices and escalating interest rates. We saw the birth of the self-certification mortgage and deferred-interest schemes like the imaginatively named 5-4-3-2-1.
Lessons were learned from that time and while the property crash that ensued was fatal for some lenders, many of those who kept a focus on intermediaries picked themselves up and continued to push the barriers of innovative lending even further.
Into the mid-90s and the innovation continued from the centralised lenders. First Active Financial, as we were known then, launched the first UK current account mortgage back in 1997. The sub-prime lender was also born, with Kensington Mortgage Company leading the way.
Today, the mortgage intermediary sector remains as strong as ever. Despite fears that mortgage regulation and depolarisation will damage its growth and force smaller firms out of the market, lenders continue to enter and look for increased market share. Just look at how important the intermediary lending parts of the HBOS group have been to its overall growth this year.
Rumour has it that at least one of the big four banks is planning a major push into the intermediary market next year – increased competition means greater movement of borrowers. Reducing margins, the decrease in customer loyalty or increased customer apathy (depending on your view) mean that 2003 will be tougher than ever for the lender with shareholders to feed rather than bleed.
The big advantage that the true intermediary lender has over its competitors is its understanding of and relationships with the mortgage intermediary. This is where reputation and brand is all-important.
But is this reputation and understanding enough to keep winning the business? Possibly – but times have changed and we now live in the internet age where comparative mortgage information is freely available and customers are strongly influenced by brand values.
The intermediary lender has to continue to add value in different areas. This can take the form of exclusive pricing, enhanced criteria, online decisions and servicing and it has to value innovation.
Most recently, we have seen the growth of the specialist lender. You can understand why – lending in areas such as sub-prime, self-certification and buy to let offer greater margins and, in the benign economic climate for lending, carry little risk.
Intermediaries also recognise that these areas offer greatest potential to them. Self-cert borrowing has rocketed, the number of self-employed now tops 25 per cent of the UK working population and increasing consumer credit provides ample opportunity for credit-score failures.
More and more lenders are looking to these areas – and why not?
The question is whether this is a sustainable long-term strategy. The market is becoming increasingly crowded, even in these so-called niche lending areas, and competition means tighter margins.
And what if we experience another property crash – will lenders' portfolios be balanced enough to handle it?
What are the key factors for lenders to prosper in the intermediary market?
Is it clever funding – the ability to raise securitised funds at lower costs than the competition? Is it distribution – those all too important “relationships”? Or does it mean servicing and criteria? No matter how good the mortgage product is, if the client cannot apply or the application process takes weeks, then it is no good to anyone.
The answer is undoubtedly a combination of all three and any lender looking to succeed in this market cannot be found short in any of these areas.
The intermediary mortgage sector has proved itself to be very resilient. It cannot be ignored and no self-respecting major lender is without its own inter-mediary specialist lending subsidiary.
Those with the deepest pockets have less to worry about but for the others they must look at their origins. Innovation grew the market and innovation must remain a key value for any intermediary.
There will be times when strategies are called into question, will it work, will it sell, etc?
Those who are not prepared to stick their necks out will never get their noses in front.