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Harris on mortgages

Competition is definitely a good thing – and nowhere is this more true than when it comes to mortgages but herein lies the problem – HBOS. Don’t get me wrong, this is not have-a-go-at-HBOS time.

The key figures at the bank have worked hard in building it into a
true multi-brand and should rightly receive all the plaudits for what
they have achieved.

But I fear that the lack of a true rival to keep the bank on its toes
is going to be bad news for borrowers in the long run.

HBOS is easily head and shoulders above the competition. Not only
does it have the biggest slice of the mortgage market but it is also
aggressively growing the rest of its business, building its share of
the current and savings account market, investments, insurance and
corporate banking.

With five mortgage providers coming under the HBOS umbrella –
Halifax, Bank of Scotland, Birmingham Midshires, The Mortgage
Business and Intelligent Finance – it has got all bases covered on
the homeloan front. Its strength in the intermediary market, in
particular, further propels it streets ahead of the competition with
the dominance of Birmingham Midshires and its impressive buy-to-let
offering. Dan Watkins, managing director of Birmingham Midshires and
Michael Bolton, director of mortgages at BM Solutions, have done a
brilliant job in taking a sleepy unit and turning it into a
specialist outfit that’s become one of the biggest lenders in the UK.

All-in-all there’s little to rival HBOS and herein lies the real
problem – lack of a viable alternative.

I admire HBOS as a company and appreciate that it has done a great
job in building its business but I admit that I am also pleased that
it did not succeed in its attempt to buy Abbey earlier this year. It
is vital that we have a decent level of competition in the mortgage
market and an HBOS takeover of Abbey would have resulted in around
half of all mortgage business going through one channel. This could
have created plenty of problems, slowing down the processing of
applications and reducing the range of deals and products available
to borrowers.

But even though the HBOS-Abbey deal never happened, HBOS still has
rather too much power. I do not want to bash HBOS – it could be
argued that it is hardly the bank’s fault that it has been so
successful – but it has done almost too well. The “competition” has
been left trailing so far in its wake that there appears to be little
real chance of other banks ever catching up.

The growth and dominance of HBOS is a challenge to rival banks to
sharpen up their act but few have risen to it. It is a big challenge
but not one bank seems to want to step up and try it. Perhaps they
are worried about failing and appearing foolish.

I would like to see one of these banks give it a go. Who should be
doing more to reduce this hegemony? Royal Bank of Scotland should be
presenting more of a challenge. It certainly has the size and
capability but so far has done little with it.

HBOS refurbishes its old headquarters on The Mound but RBS is
splashing out on a marvellous new headquarters near Edinburgh
airport. RBS seems keen to show that it is still the bigger bank with
greater resources but it is not exactly leaving HBOS in the shade.

RBS has its own multi-brand offering, including, on the mortgage
front, NatWest, Coutts, Direct Line, and First Active, along with
insurer Churchill and asset finance company Lombard contributing to
its business. It has improved on last year’s performance and is
building the business, particularly internationally, but it is not
mounting a sufficiently serious challenge at home. The reality is
that it has some way to go until it catches HBOS.

I take my hat off to HBOS for what it has achieved and the great job
it has done. But there are dangers for the mortgage market in one
bank being too successful. The bigger banks need to do more to ensure
the dominance is only fleeting. In terms of resources, RBS has the
capability but needs to do more to achieve greater market share.
Otherwise, we will look back at these halcyon days when there was
competition and a decent range of attractive products and rue the day
when one bank was allowed to call all the shots.

Mark Harris is managing director of independent mortgage broker Savills Private Finance

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