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Prime numbers

Three interesting and complementary announcements by lenders recently are likely to produce some significant changes and opportunities for intermediaries.

Possibly the most influential is GE Money Home Lending’s decision to move into the prime market. When you add this to Beacon’s new shared-equity product, one can see that the US-backed new lenders which have traditionally occupied sub-prime space are now likely to move heavily towards the prime market.

Margins have always been relatively unattractive in this sector for the securitisation-based lenders but the attraction of volume fees for securitisation means the commercial arguments are dominant. I do not expect these two to be the last announcing such a move.

Halifax has obviously seen this coming. It plans to pay retention fees to intermediaries from August, together with revamping its retention and distribution strategy.

In many ways, we are cycling back to the early 1980s when the likes of the Mortgage Corporation, National Home Loans and First Mortgage Securities radically changed the market.

In the US, volume and price is dominant rather than brand and this must be of concern to Halifax. With the right organisation and planning, this is a major income opportunity for intermediaries and a recognition by the leading lending group that they have to work with intermediaries. It also heralds renewed price competition. The strategy will only work in an advisory sector if Halifax sustains market-leading new business productsfor retention.

We know that Alliance & Leicester is also planning a similar announcement and others will follow. This may transform the remortgage market. The key issue for intermediaries is maintenance of their customer relationships and grabbing as much of the market as possible. The market is likely to stimulate a new linear relationship between consumer intermediary and lender which may be far more stable than in the past. It will be interesting to see how the agency-chain-based intermediaries try to capitalise on their advantage in the marketplace.

Finally, we have seen Alliance & Leicester completing its much heralded entry into the specialist lending sector. This is again funded overseas. Although initial distribution is only through one mortgage club, the products are attractive. You can be certain that the strategy will be well thought through. It remains to be seen how the likes of Abbey, Nationwide and Cheltenham & Gloucester respond.

Probably the most interesting of the new lending initiatives is from Beacon. Many lenders are trying to put together an integrated shared-equity solution and the Beacon offering looks like a first to open up this sector. Details remain to be seen but this is potentially a massive market and others will work fast and hard to follow. Shared equity is no just for the first-time buyer as it is as relevant to second-time buyers and could be self-sustaining. It is no longer just relevant to certain employment groups. It is likely to be a self-fulfilling prophecy with a stable house price inflation environment and sustaining an ongoing need for it in the market place. The only constraint remains the availability of the market’s appetite at a wholesale level to assimilate the housing market risk that will be placed for our securitisation. Obviously, like London buses, innovation travels in packs. Let us just hope they all arrive on destination in time, carrying an intelligent group of intermediaries.

Mark Chilton is chief executive of Purely Mortages

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