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Moving story

lender profile Guy Anker on the move of established lenders into specialist markets

Alliance & Leicester is one of the many lenders undergoing significant change at present with moves into new markets.

One of the bastions of the high street synonymous with prime lending, it began its significant move into the non-conforming market through a tie-up with Lehman Brothers in June, while it is likely to cement its place in the secured loans market next year using the broker channel.

Other issues Alliance & Leicester is grappling with what to do on the thorny issue of retention and whether to follow the trend set by GMAC and Edeus and provide instant offers.

Head of intermediary mortgages at Alliance & Leicester Mehrdad Yousefi says: “We are one of the top six lenders so people wondered why they were not getting a mortgage when, for instance, they had a county court judgement or if they wanted a buy-to-let. So we were reacting to the customer when we decided in 2005 to enter the specialist markets in 2006.”

The move into the sub-prime, self-cert and BTL sectors will not see Alliance & Leicester taking on the risk, but it is selling loans onto investment bank Lehman Brothers on completion.

The partnership was confirmed in June, although it is only a short-term one and the door is firmly open for Alliance & Leicester to eventually keep the loans it sells on its balance sheet.

Yousefi adds: “The economic background has been very benign with reasonable growth so all the indicators are sound for lenders going into new markets – that is why we had to position ourselves as a one-stop shop.

“The Lehman partnership is critical because we can understand credit risk and other issues through its experience. It is a short-term decision to partner with Lehman. It does not mean we are with them forever.”

Yousefi stresses that the lender is not planning to take the highly competitive and lender-congested sub-prime sector by storm, but instead expects a greater return on self-cert, BTL and near-prime business.

“It is our ambition that we will have 2-3 per cent gross market share in the specialist sector by 2010 – it is an aspiration and not a target,” he clarifies.

“We will not compete in the same way as GMAC and Edeus on sub-prime – we will give the others a run for their money on BTL, and on self- cert and near-prime we can add value. With use of technology we could convert a vast majority of declines on near prime to completion.”

While the move into specialist markets has already begun, Alliance & Leicester next big mission on new products is to turn its soft launch into secured loans and then into a full-blown offensive.

At present, Alliance & Leister sells second-charge loans direct but is review- ing the option to involve brokers in its big push next year, though from the language being used, it is almost a foregone conclusion it will.

Yousefi says: “We have been one of the major banks on loans and we have a 5-6 per cent market share. We have had a soft launch on secured loans but we will expand next year as secured lending and specialist lending are the main drivers for profit. No lender can overlook the intermediary market as it is a powerful distribution tool.”

The various changes and plans for the future come at a good time for Alliance & Leicester’s mortgage arm, with them having reported in July a dramatic increase in mortgage business in the first half of 2006.

The company saw gross mortgage lending of £6.4bn, 58 per cent higher than in the first half of 2005, which represents a 4 per cent market share. Yet the group has had to deal with continued takeover speculation and its core operating profit dipped slightly from £272m for the first half of last year to £268m for the first six months of 2006.

One issue the broker market will be keen to monitor is whether Alliance & Leicester follows the lead of Accord, BM Solu-tions, Halifax and Woolwich, and launch a retention scheme.

It is certainly interested but it is also evident it has concerns that any schemes that pay a full proc fee may fall foul of Treating Customers Fairly principles.

Yousefi explains: “Reten-tion proc fees can be fantastic, but there will be less expensive lenders that have a better remort-gage product than Halifax which means that, when its products are £20 to £25 a month more expensive, the issue is that some might forego the best product for convenience as Halifax makes it so easy.

“Is TCF the best product or a competitive product? Are retention proc fees in conflict with TCF? Will the regulator look at them?

“We are undertaking a review and we have an external agency conducting research in the intermediary market to ascertain what our customers expect of lenders and from that we will decide what we want to do with retention.

“Maybe if lenders and brokers shared their profits and remunerated brokers for every year the mortgage remained on its books, that could be the most transparent way.”

While Yousefi outlines his firm’s grand plans, he also concedes it has work o do to bring its technology in line with some rivals, which is likely to result in the availability of instant offers towards the end of next year.

“It is our aspiration to improve our service and technology – we are looking at AVMs very seriously and we will use them in a targeted way in 2007 at some point. We have a legacy technology platform and if we want to issue instant offers we will need new technology – maybe not in the next three months but probably in the next 12 to18 months.”

That is not to say Yousefi believes Alliance & Leicester has any major issues that are hampering service at present. He says: “We are proud of our intermediary distribution and it is among the strongest in the market in terms of quality of service.”


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