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Singing the blues

After HBOS was likened to the Chelsea FC of the mortgage market, Guy Anker questions whether its dominance is detrimental to borrowers and if any lenders are capable of putting up a challenge

HBOS has been compared with Chelsea FC because its clout in the mortgage market is akin to the club’s recent dominance of the Premiership.

Data from the Council of Mortgage Lenders reveals that HBOS controlled 21 per cent of the mortgage market in 2005, way ahead of second-placed Abbey on 10 per cent.

This has sparked debate on whether the size of HBOS is leading to any detriment for mortgage brokers and borrowers. Such claims have been made in a number of other industries such as telecommunications and supermarkets, where British Telecom and Tesco have been cited as stifling competition in recent years.

Pink Home Loans managing director Tony Jones says: “It would be helpful if HBOS had a challenge to keep it on its toes and it is whether the smaller players can be more innovative. HBOS will welcome a challenge and it is healthier to have a level playing field.

“The problem could get worse under the Basel II capital-adequacy requirements as if firms can demonstrate that they are calculating risk better – and you need a certain size for that – then their cost of funds is lower and other firms may not all be able to match HBOS.”

Hamptons International Mortgages technical director Jonathan Cornell says: “It is not all doom and gloom for brokers but they would benefit even more from some healthy competition. It would do the broking industry a favour if the others were to get their act together and catch up.”

One example of the detrimental effect that HBOS’s dominance may have on the market came from Royal Bank of Scotland earlier this month. When RBS came under fire for admitting it had stepped back from the intermediary market in the first half of the year, its response was to argue that HBOS had been pricing “at a loss” to ensure greater market share and that it could do so because of its size, which made it harder for others to compete in the market.

The sceptics may argue that RBS is simply fighting its corner after coming under pressure from the broking market but it nevertheless highlights the concerns that many people have.

HBOS refutes the claim that it prices for volume by running loss-leaders. Spokesman Paul Fincham insists that price is important but so too is service and the overall package. He says: “We always welcome increased competition. It benefits everyone and no one more so than the customer.”

Mortgageforce managing director Rob Clifford does not have a problem with HBOS’s dominance. He says: “In my 18 years in the industry, I have never found it difficult to deal with Halifax or now HBOS. I cannot say that about many lenders.

“It only becomes a problem for intermed- iaries if it is a problem for consumers, if it restricts consumer choice or if market control is such that it is anti-competitive but that is not happening. If HBOS had 30 per cent of the market, it would not be a problem for me as it would have to have great deals to have that.”

HBOS has made moves to further strengthen its proposition by introducing retention incentives for its Halifax and BM Solu- tions brands, with full proc fees on retained business and the same deals for new and existing customers. Bank of Scotland has confirmed plans to introduce a similar scheme next year.

Clifford argues that HBOS’s dominance has a lot to do with the brand built up by Halifax over the past few years on the back of its aggressive advertising. He says many customers often ask: “Who?” when offered a mortgage from BM Solutions or The Mortgage Business but go ahead with the loan when told that the lenders are part of HBOS.

So who can challenge HBOS? Of the chasing pack, Cornell has tipped Northern Rock as the most likely while Abbey has been praised for making strong strides recently. RBS has had its well-documented problems with service since it launched RBS Intermediary Partners although its interim results showed that its direct arm is performing well.

Nationwide has promised to improve its services to brokers while Lloyds TSB subsidiary Cheltenham & Gloucester has hinted that it could soon move into the non-conforming markets.

Abbey for Intermediaries managing director Ricky Okey says: “We have worked incredibly hard to get our service up to very high standards and we are confident that brokers can trust us. We are committed to the channel and by working closely with intermediaries we have introduced measures to make their lives easier.

“Our product range is very competitive and we have been doing record levels of business as a result, so we intend to keep challenging HBOS for the number one spot. We are always looking to the future to see what improvements we can make to service and to our proposition as a whole. It is a fast-moving industry and we aim to stay one step ahead of the competition.”

Northern Rock spokesman John Watson says: “Northern Rock is operating very well within the mortgage marketplace and delivered a record lending performance in the first half of 2006.”

The likes of Abbey and Northern Rock will be hoping that HBOS suffers a blip, much as Chelsea has done in the last week or so, but there are no signs yet that it is ready to plummet down the mortgage league.

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