Before I assess individual lenders, a note on their overall performance is appropriate. Several are still making handsome profits from homeloan activities although the majority are increasingly bemoaning the impact of margin compression on their prime product suites.
Some refer to the irritation that is “mortgage churn” or the nuisance that is the “rate tart” but they conveniently forget that this is a phenomenon which they created.
Moves towards developing longterm fixed-rate products – recently mooted by Gordon Brown – will only succeed if the funding of these products becomes more innovative and the pricing more competitive and will also require a greater alignment of interest between lenders and intermediaries. Trail commission or some form of profit-share may feature within this to achieve the desired goal.
There is also the inconclusive debate surrounding branch v intermediary origination. HBOS has perhaps now perfected an operating model for its branches which makes them comparatively less expensive to run than the intermediary disciplines, where rising procuration fees have depressed net returns.
I have never thought that these two origination channels should be mutually exclusive but it will be interesting to see if the plates are indeed shifting across this landscape into 2008 and back towards the high street .
HBOS has had a peculiar year and TMB has positively sparkled. Council of Mortgage Lenders’ figures on offset take-up behaviour are a fillip for Intelligent Finance and its surveying arm Colleys continues to dominate. But margin erosion across its key product groups within Halifax, Birmingham Midshires and Bank of Scotland means in some ways that it is at a crossroads.
I have long thought that both the City and HBOS has been too precious about market share statistics at the expense of profitability. Even Abbey recently suggested that it was looking to be less affected by market share performance and noises coming from Nationwide also indicate that the pursuit of gross lending to the point of value destruction will become a thing of the past .
HBOS would also be better served if it globalised itself. It is unhealthy that an organisation this size is so reliant on the health of the UK property market and some investment in foreign assets would alleviate some of the stresses and risks of the burdens risk it is under in the UK.
Furthermore, some of the capital it expends on prime mortgage lending would secure it a better rate in a 90-day savings account so I would not necessarily agree with some recent commentators’ assertions that the remaining six months will witness fire sale-styled pricing from HBOS.
Northern Rock has also had a mixed school report. The veracity of the pricing “mismatch” episode put to one side, two things are not in doubt about Rock.
First, it has probably been the best pound for pound lender in recent years. But, second, with the initially token competition to its Together product having finally been replaced with genuine offerings firms such as Birmingham Midshires, it will be intriguing to see how a product which forms a third of its revenue base performs in the face of tougher competition and a cooling property market, wherein high loan-to-value lending may have to become more discerning.
Most improved classmate is Woolwich. Well done to David Finlay and his team, who, virtue of creative product design and vastly enhanced service propositions, have got the lender back on many brokers’ recommendation lists. It needs to continue to build on that achievement, though.
Nationwide has also upped its game and is overcoming an historic phobia among brokers that it was not intermediary-friendly. It certainly is now .
With many schools breaking up, I felt it opportune to take a look at how the endof-term reports for the country’s leading mortgage providers might look, not least because the concepts within the FSA’s RDR may have far-reaching implications for them next year, especially in the realms of primary advice channels if that model proliferates.
Which brings us finally to Abbey, RBOS and HSBC. Abbey has really improved its game over recent years and is another lender whose development of high LTV products and affordability-led solutions is to be commended.
On its shoulder, however, sits the spectre of how its parent orginates the sale of financial services in Spain (almost entirely through branch networks) and I hope that the acorn falls far enough from the tree here.
RBOS probably has most to do next term to convince intermediaries that it can be a serious player again. Chris Pearson may well replicate the HBOS multi-brand strategy as a first step and the recent promotion of the One Account to a stand-alone entity is a progressive move. But its policy with packagers (which is where the best margin products presently sit) does seem like an own goal.
HSBC remains the great enigma. The UK’s biggest bank recently refuted suggestions that it was finally looking to seek intermediary origination. A sigh of relief on the part of its competitors may proved short-lived as I sense that it doth protest too much. It has made a laudable success of its branch operations and has fashioned a global footprint which makes its UK lending business less susceptible to a market downturn here.
But notwithstanding its recent troubles in the US, one cannot help speculating that the returns available from specialist lending in the UK (for the moment anyway) render its absence from this sector puzzling.