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Single-minded cartel homes in on lone deal

Manchester-based mortgage broker Cartel is planning to tie to a single lender and managing director Carl Wright predicts that broker firms will increasingly look to cre-ate these types of relationships as the market becomes more competitive.

Talks have been going on between Cartel and several companies, with negotiations set to be finalised by the summer.

Wright confirms he has been in negotiations with several names in the industry, including three American investment institutions, two Australian banks and a number of mortgage providers and asset management firms.

The decision to single-tie is not new for Cartel. In January it it had agreed to a three-year protection single-tie with Friends Provident. Friends will provide level and decreasing term insurance and crit-ical-illness cover through the Friends eSelect Protection proposition.

Cartel is proposing a similar relationship on the mortgage side but Wright con- cedes there may also be room for a third party to be involved, that is, a lender may acquire a relationship with a third party for a certain product but the relationship with the mortgage firm will remain with the original branded lender.

For example, for the 5 per cent sub-prime business that a mortgage firm may do, the products could be sourced from an alternative funding source but there would only be one lender relationship.

The shareholding structure of a single-tie deal like this is likely to be a little more complicated. Wright says: “This depends on whether it is a full-blown marriage or whether it is term-related.” Current plans are for any single-tie to be reviewed every three years.

Wright says: “The more firm or solid the relationship, the more it is going to cost both parties. This is the dilemma of the intermediary.” Another issue is whether the lender should get an equity stake in the business. Is this part of my strategy? The issue is how this is to be structured. Does the lender pay on 2005 prices or 2008 prices if we are expecting growth in the next three years?”What has prompted Wright to make such a big decision for Cartel? His pred- ictions on future distribution for the UK mortgage market are startling.

He believes the market of independent brokers will shrink considerably in the next two years and thinks believes it will sink as far as to comprise just 10 per cent of the overall market. He also considers there will be a drop of as much as 20 per cent in mortgage lending within the next 12 months. This will mean lenders will accelerate their drive to control distribution, he says.

For example, Alliance & Leicester restricted the number of intermediaries it was willing to work with shortly before mortgage regulation in October 2004. A&L said the regulatory requirements on brokers had forced them to reassess its relationships, which would be gradually reviewed after regulation.

Wright is also forecasting a race against time as lenders look at distribution options. He says: “The pace at which lenders try to tie or purchase distribution will increase rapidly during the next 12 mon-ths and this will continue to erode the number of brokers that are truly independent.”

Principality Building Society bought Cardiff broker Loan Link in December 2004 to create Nemo Personal Finance and 160 new jobs in South Wales. Wright cites this move as an indication of how the market will move.

Bradford & Bingley halved its mortgage panel of lenders recently from 50 to 25.

Wright says: “As the number of top-quality intermediaries start to sign agreements with lenders, those lenders who did not want to pursue that strategy will have no choice. Currently, intermediaries are sat on the shelf waiting for suitable prospective partners to propose and, as they do, the supply will dwindle very quickly and the stampede will soon be in full flow.”

Mortgage Force managing director Rob Clifford says he would be amazed if brokers sit rubbing their hands waiting for lenders to approach them. He says: “Manufacturers buying into distribution is not uncommon but regulatory restrictions would make it difficult for anyone to control market share. Relationships will continue to be made but possibly not at the rate that Cartel is predicting.” He also points to the fact that several broker firms are owned by lenders. Bradford & Bingley owned Charcol until recently, Skipton owns Pink Home Loans. Charcol did and Pink continues to work independently of the lenders.

But neither of these has taken the step of negotiating a single-tie deal. Alexander Hall chief operating officer Andy Pratt says: “The whole point of going to a broker is price, service or flexibility. But choice is the key word, it has become part of the way that customers think. Independent advice is becoming more and more important and customers are becoming aware of that.”

Hamptons International Mortgages mortgage broker Jonathan Cornell finds Wright’s vision difficult to accept. He says: “Unless it is tied to HBOS, which would cover a large percentage of the market, I fail to see how this will work. How do you get a mortgage broker to sell one product from one lender?”But Wright says: “Custom-ers do not care about badges any more and most lenders agree with this. What they are concerned with is what it will cost them. The multiple-panel paradise is going to undergo a reclassification. Lenders know this. Some mortgage intermediaries are naive to think otherwise.”

Gmac RFC head of marketing services Jeff Knight believes things are not as clear cut as Wright would like to think. He says: “There will certainly be shifts in distribution channels but no one really knows how.”

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