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Mortgage View: Three’s a crowd

Much has been written of late about the alleged demise of the industry’s Holy Trinity: packagers, networks and clubs. So as an intermediary business which has a limited interface with all three, I think Hamptons has a relevant opinion.

I underestimated the longevity and usefulness of packagers. I had thought that online technology and a willingness among lenders to deal direct with brokers would sound their death knell. But recent tactical plays by GMAC and Kensington provide vindication for packagers’ raison d’etre.

Not all will survive once new entrants to the specialist lending arena begin to compress margins on certain product suites, such as near-prime. But most will continue to thrive and I believe that many are actually in ruder financial health than most mortgage networks are. They also have the capacity to absorb any partial erosion of their present operating margins.

As for networks, I sense that their day of reckoning has arrived. This is a chronically over-populated sector which I believe has been wrong-footed by the fact that, post-regulation, many mortgage practitioners either remained or became directly authorised. As a result, the definitions of what constitutes a packager, network or mortgage club are becoming distinctly blurred. Many networks add real value for their members via product procurement, fee collection and compliance support services, but operating margins within smaller operators are skinny at best, not least because commission shares are weighted so heavily in favour of the AR.

The new battleground being formed will see these networks facing-off with their arch-combatants, mortgage clubs – generally leaner businesses carrying modest overhead costs as they are not weighed down by regulation. But to some uninformed commentators they are still little more than ‘sticker clubs’. Again , Hamptons has little involvement with them, but after dealing with the likes of Legal and General and the omnipotent Premier Mortgage Services, I don’t begrudge them any of their case earnings.

They are invariably providing access to a product or an underwriting concession which we ourselves could not ordinarily access.

All three sectors will witness some consolidation over the coming year. But if I had to be a long-term investor in each, my order of preference would be; club, packager, network. And holdings in the latter would be pretty light.

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