The concept of the mortgage club originated during the mid to late 1980s when the intermediary mortgage market was beginning to really gain momentum.
During the early 1980s, the market had been dominated by building societies who distributed and administered mortgages via traditional branch networks. However, the building societies had stringent lending quotas and were not able to satisfy the demand for mortgages, and banks seized upon this opportunity by diversifying their lending and risk. This resulted in a raft of new providers and products entering the market.
By the 1990s brokers were still far from the force they are today, but acceleration increased as specialist lenders come to prominence.
This emergence fragmented the market and led to a flood of ‘new money’ enabling brokers to distribute more mortgages across different sectors. These new distribution channels were initially relatively small. But as products evolved and became more complicated, this gave rise to the packager market and the further growth of the mortgage club.
Distributors grew rapidly over the course of the next decade, working closely with the intermediary lenders to negotiate exclusive products and increased procuration fees on the broker’s behalf. This of course was fuelled by competition as a large number of lenders had what seemed to be unlimited lending funds. At this time many new entrants entered the market, including The Mortgage Alliance in 2000.
Mortgage regulation in 2004 was a defining moment for many intermediaries as they had to decide on their newly regulated status. The immediate choice was either to become an appointed representative by joining a regulated network who shouldered most of the regulatory responsibility, or being directly authorised by the FSA. This allowed a greater degree of control while being supported by external contacts such as ‘pure’ mortgage clubs. Some organisations launched a multi- brand strategy and others quickly followed suit.
Between 2004 and 2007 the mortgage market expanded at an even faster pace. But since then it has been hit by the credit crunch and its funding/economic ramifications.
This bleak period has forced lenders to reassess their distribution models and, as a result, the numbers of exclusive products have diminished rapidly. Procuration fees have also come under the microscope.
There is no getting away from the fact that this has affected the distribution channel massively and the packaging market has suffered a number of casualties.
In fact, the term ‘mortgage club’ is no longer relevant to the modern marketplace. As ‘pure’ mortgage business has dried up, intermediaries are forced to look to other fields and sectors in order to remain in business and indeed prosper.
When mortgage business was brisk it was all too easy for all elements in the mortgage chain to generate business and the resultant commissions. But we have had to retrace our steps somewhat and get back to supporting intermediaries in areas they may not be familiar with or have not had to investigate in the past.
From the other side of the fence, mortgage clubs have also had to get closer to their suppliers to ensure the marketing and distribution of their resources is efficient and effective for both parties.
A good club will now possess a wide panel of lenders covering all lending opportunities, including secured loans, bridging, commercial, debt solutions, overseas, high net-worth and sale-and-rent-back.
These areas should be supplemented by a range of ‘other’ financial services products, which will continue to add value to the offering as a whole.
General insurance, protection, conveyancing, lead generation and private surveys, for example, are all areas advisers should not discount.
The provision of support services have also become a vital component to a club’s repertoire. Discounted alliances with leading technology providers, sourcing and client management systems are all important additions to the club offering.
It is no easy task to anticipate what the future holds for the market but I believe we will continue to experience consolidation of business writers and those working in the distribution channels. Inevitably, this will result in fewer but larger players jostling for market share and as long as the element of competition exists, brokers should continue to benefit from such provider offerings.
This consolidation highlights just how important it is for intermediaries to choose their regulatory partners wisely, especially in light of recent high-profile mortgage network financial issues and the resultant implications for the brokers involved. These issues will also result in the continued switching of regulatory status by brokers, whether it be from appointed representative to directly authorised status or vice versa.
In order to make these decisions, it is up to clubs and networks to illustrate their stability and how they can offer true added value and support to a broker’s offering.
Support is possibly the key word here. Through necessity, brokers are having to look to break into new sectors to boost revenue streams, and this support will be vital in establishing good quality links and partnerships with these niche areas.
Speaking to our members has led us to implement an even stronger support structure centred on the business, and not just offering a portfolio of products to wade through. Across all sectors of the market we have to get closer to our customers to ensure we are providing the right offerings and service.
The market has shrunk and it is this continued flight to quality that will ensure distributors will have to carry on upping their game in order to best serve the needs of their customers and ultimately flourish amid such challenging conditions.