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Entrances and exits

Two arrivals into the competitive UK mortgage market have adopted diametrically different strategies. Edeus is a 100 per cent intermediary business and its USP is service rather than price, with a fee being charged for quicker service. Ing is a 100 per cent direct-to-consumer business and its USP is pricing, not necessarily in interest rates but in respect of fees, with an emphasis on no exit fee.

One feature that both lenders share is offering automated valuations via Hometrack, although it appears Ing is rolling this out gently whereas Edeus has fully embraced it.

With intermediaries having a 75 per cent market share, ING is competing for just 25 per cent of the market. Although that represents an annual market of 85bn it means its potential market share in percentage terms is somewhat limited. Both lenders have big marketing budgets but as long as Ing is a direct-only lender it will have to rely primarily on getting at least one product in the best buy tables and/or a big marketing spend, unless it manages to achieve more than the normal 1 per cent success with direct mail.

For the first couple of years, ING will benefit from very few redemptions and so whatever gross lending it achieves will also more or less be its net lending. I expect it to report its lending figures on a net basis for at least two years, with little mention of the gross. For example, if it does 1bn of gross lending in 2007, that will be a market share of about 0.3 per cent. However, as net lending would also be around 1bn it would be approximately a 1 per cent share of net lending, a rather more impressive figure for the first full year of a new lender.

The FSA report on exit fees is imminent and the timing of Ing’s launch should ensure it widespread media coverage. Transparency is a key FSA requirement is transparency and, due to the pronounced lack of transparency in exit fees imposed by the vast majority of lenders, it seems probable this will be one major focus in the FSA report. Ing’s policy of no exit fee is transparent.

Ing claims it intends to offer mortgages via the intermediary market but has set no timeframe. No doubt, it wants to see what it can achieve on a direct-only basis first. This reminds me of The One Account’s policy. It initially also launched as a direct-only lender and was very critical of the intermediary market, until they needed us.

Ray Boulger is senior technical manager at John Charcol

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