When you first started in financial services, it wasn’t specif- ically in mortgages was it?
I joined Natwest as a bank clerk in 1985. I did six or seven years in banking, then I became an IFA for the bank. Then the bank tied, it launched its own insurance company called Natwest Life and I dec-ided that I did not really like the tied concept so left the bank in 95 after 10 years in total. I went to work for a mortgage IFA called John Charcol. I did 10 months there and then was one of the initial launch team that left to set up Savills Private Finance.
What was it that prompted you to set up Savills Private Finance?
To be fair, it was Savills who wanted to do it, they decided there was a market. It is not an uncommon model. Savills is now best described as a global property company but back in 97 it was a much smaller company and it was perhaps better known as a residential upmarket estate agency brand. And it would not be uncommon to have a financial services arm linked to something like that. But really that was the initial plan, ‘we’ve got this estate agency business – the two go hand in glove – let’s get a business set up.’
Were you aware at the time that the business conditions were going to be so favourable?
I don’t think anyone could have predicted what has happened in the last 10 years. What have we had? Pretty much double-digit house price inflation, we have had a rapidly developing mortgage industry, with product innovation, with new sectors, the buy-to-let sector, etc. So, no, you could not have assumed that was going to happen but I think we all thought it was an opportunity to put our mark on something, which is what appealed to the initial launch team, much of which is still here.
Savills has got quite a few strings to its bow, particularly on the property finance side. You’ve got residential, commercial, agricultural, hotel and leisure finance as well. Was that a deliberate plan to pick up some of these slightly more niche areas?
Yes. About five years ago, we were almost exclusively doing residential and we were getting more and more developed in terms of our clients and our client requirements and we just felt now was the time to aim to deliver a one-stop solution to all our client requirements. And that really involved setting up a commercial debt broking team, which we have in place now for six years. We have a team overseen by Mike Bowles that specialises in international mortgages in the key markets, agricultural and then developing into the affordable key worker market with our purchase of Sherwins, SPF Sherwins as is now.
We decided strategically five years ago that we did not feel it was necessary to outsource niche requirements. We felt we had enough scale and enough talent to offer this in-house. That is really what we have embarked on in the last five years in particular and we have now got specialist teams in all those areas and they are a fundamental part of our success story.
Are there any other specialist areas that you have got your eye on expanding into?
Nothing in the UK sector that we feel that we are particularly exposed in or don’t have sufficient skill in. What I think the next five years will see is adding more scale. We’ve just taken on quite a high-profile person with the international team, Miranda John, who is very well known and very well respected. And on the commercial debt broking side, we are about to recruit someone in the North of the country. So I think our development in this area will be more of the same rather than new sectors for us to go into.
Probably what is more interesting is actually looking to take what we do into different countries. We’ve acquired in Guernsey, we are about to set up in Jersey and we are considering all the time opportunities in other European countries.
Is that where you see the majority of Savills’ growth in future?
On the mortgage side, no. I still think the vast majority of our growth and our future development is in the UK. If you look at the UK market, it was £360bn last year. We are big and we have got about 1 per cent of the market share. What that tells me is that there is 99 per cent still to go at. There is plenty of opportunity. It is not like we are at 20 per cent market share and nearly at saturation point, there are lots of opportunities still in the UK.
It is about spreading risk and about having a balanced offering and in terms of where our growth is going to come from. It will come from other countries but principally it will come from the UK, where we believe we offer something which is unique and there is more to go at.
You mention the spreading of risk and balancing your business. In addition to the mortgage business, you have also got financial plann-ing, retirement planning and other advisory areas. Is that a deliberate plan to diversify the business away from the core mortgage business?
I think it was. Don’t get me wrong, high-net- worth South-east mortgage broking is a big market but if that is all you do and something happens to the property market, you are very much exposed. If all you do is high-net-worth London property and suddenly there is a sea change in the market, interest rate rises begin to bite, the market slows down, the opportunities reduce, you’re a little bit ‘what do you do, then? It’s Tuesday lunchtime and we’ve got no work.’
All these things were add-ons but they are offerings that our customers want. So, yes, we have adopted this diversification strategy almost since inception to make sure we can offer a rounded service. Things like property insurance. We have got a specialist team that looks at high value property insurance. There is always going to be a demand for it, you don’t have to move house to need high value property insurance. And it is just an added service that we feel compliments what we do and it just gives a bit more balance.
Do you feel there are some other specialist mortgage brokers who could be caught out if the market does turn and they are reliant on the one area of business?
If something happens, what they will do, if these people are talented, they will simply reinvent themselves. This is what we have seen when people predicted the death of the packager, the good ones have reinvented themselves and continue to thrive. So I don’t think the good ones will have any difficulty, they will reinvent themselves, they will enter new markets. I think in any industry if you just sit there and don’t look ahead and just live for today, there is always a danger that tomorrow will be different.
I do think there are probably, certainly in the last few years, elements of our industry that are like order takers. It is quite easy to do well in a market that is doing well and I suppose the test of how good you are is if things aren’t so good and the market isn’t as hot and you’ve got to work a little bit harder for your money. I think by being as diverse as we are we are in a good position.
You’ve recently opened offices in Cardiff and Windsor. Do you have plans to open any more offices in the UK?
We haven’t got a set ‘we will open 20 bran- ches in the next five years’ type of strategy but I think over the next few years will we open probably another 10 offices in the UK. Now where will they be? There will be an element of linkage to Savills because if Savills are expanding while we only get 10 per cent of our work from Savills, if they are going somewhere, it quite often makes sense for us to go there as well. Not for the 10 per cent of our work element but because of the infrastructure, IT, etc.
So we will work closely with Savills, our parent, to see where they are heading and we will do some stuff off our own back. Cardiff, Brighton, they are not areas where there is a Savills office but I think in the next couple of years ones on the radar – probably Newcastle, somewhere in Cheshire (we’ve got a team in Manchester but perhaps somewhere over the other side towards Chester), home counties, something perhaps on the Northern ring of the M25 so perhaps Hertfordshire/Bedfordshire area. Those are the spots we are looking at but we have no ambition to have an office on every high street.
It has got to be economically viable and the key thing is that you have got to be able to resource it with people. You are only as good as your people.
With your plans for expansion, you clearly don’t think the property market has reached its peak or is forming a bubble.
I’m always wary of predicting house price growth as I’m not qualified to. I’m a mortgage specialist and I think some mortgage specialists forget that. They suddenly become economic analysts of house price data and clearly the people who know are the people who are specialists in that area.
The advantage I’ve got is that I work for Savills and Savills as a group is a property comp-any. So if I rely on their data and their research then, no, I think we’re in for sustainable single-figure property inflation for the foreseeable future. I don’t expect to see a big correction, a big sort of bubble burst as such.
I’m reasonably optimistic on the housing market and as a mortgage broker, if there is a correction, then the need for advice almost increases. The need to be able to remortgage and make sure you are on the best rate, on the best terms, the need to consolidate and re-structure your debts.
It’s a cliche that as one door closes another opens but I’m a firm believer in that and by having a diverse offering you can perhaps shift your focus to new areas. But no I’m not a doom-monger. I’m pretty much of the opinion that the market is sustainable, clearly not at 20 per cent growth but at reasonable single- figure levels.
Do you think Hips will have a noticeable effect on the property market?
No I don’t. Savills as a property company is not going to be manufacturing Hips, it is just going to be recommending Hip providers to its customers. The people who are making all the noise about Hips are manufacturers of Hips. I suppose if I was a manufacturer I would be making a lot of noise about it.
But if you actually cut through all the headlines, the people who are writing all the articles have a massive vested interest in making a load of noise. I personally, whether it is naive or if I’m ill-informed, don’t think it will make a great deal of difference.
Some people have said the introduction of an extra cost may put people off and cause a shortage in property supply by reducing speculative advertisements.
Yes, it could stop people testing the market but maybe that is not a bad thing because you don’t want people just dipping their toe in an testing the market. You want people who are genuinely prepared to sell because if you are genuinely prepared to buy, then you don’t want to be messed about by someone. So it works both ways. I don’t think we need them but we’ve got to work with them. But I don’t think it will have a massive impact either way.
On the slightly more intangible issue of affordability, do you think there is an issue with the affordability of property?
Yes there is, particularly for first time buyers.
I think we as a nation look to buy property very early in our lives. You are constantly under pressure in your mid-twenties to get on the housing ladder. If you look further afield, if you look into Europe, there is a much higher age of entry into the housing market. And I think it is about expectation levels, if you are a firsttime buyer, if you are on £20,000 a year perhaps you are not ready to buy a property and perhaps you need to spend five or six years in rented accommodation, building up a deposit. I think lenders need to provide more innovation.
I do think that affordability has become an issue and the products and the schemes the Government are backing need to be refined. There is too much talk and not enough action and not enough delivery. We are still not getting the houses built quick enough and we are not getting them out on the right schemes to the right people. It is a terrible time to be a first-time buyer and then on top of that you’ve got a bit of pressure on interest rates as well, which just adds to the equation.
On the subject of interest rates, do you have an opinion on how high they will go?
Again, I’m going to sound like a politician. The thing mortgage brokers need to remember is they are mortgage brokers, they are not interest rate analysts. Too many people get carried away with what knowledge they have really got.
But if you’re asking my personal opinion of them I would say it’s pretty much unqualified because I am not an expert analyst on economic data to determine where interest rates are going. If I was, I would be doing a different job.
It looks like they’re close to peaking. We mustn’t forget we’re still in a low interest rate cycle compared with previous generations. Yes, quarter-point rises that we have seen in the last 18 months have hit people hard but I still think that we are probably close to the top of the cycle, maybe one or two more.
I would not personally be too surprised if we did not see interest rates peak and then begin to fall again as inflation comes under control.
Do you see a noticeable change in demand or buyers’ confidence with each quarter per cent rise?
It does vary in the client base. We’ve got a very diverse client bank. I think the high-net-worth market, people borrowing over half a million pounds, I don’t think it makes a great deal of difference. If you’re borrowing half a million pounds, you need to be confident you can service a debt at 4 per cent, 5 per cent, 6 per cent.
To them, it is another £100 a month. Well, that is a lot of money but if you’re on £150,000 a year then you would be able to budget and I think you should be able to budget that within your monthly expenditure to allow for that. So I think for those, no it doesn’t make a great deal of difference. For the first-time buyers at the other end of the scale, yes, it does. It does affect confidence. It certainly refocuses people’s minds especially when rates are rising, it gets people thinking.
And I think there is probably some people going to get some shocks. A lot of two-year fixed money coming up in the next few months and you’ve got people coming off rates beginning with a four and they’re going to be going onto rates beginning with a six. And I think for them there’s some big payment shocks to come and they really need to get some goods advice and they need to be speaking to their current lender or seeing what’s on offer, talking to their broker, looking at what’s open to them and making sure they’re not hanging around on the SVR for too long.
How do you rate the Government’s record on housing and mortgages. Have they been a help or a hindrance?
Well, I’ve no political views but it’s widely acknowledged that the best thing they ever did was hand control of interest rates to the Bank of England. And that has been his big success because he is putting control of interest rates in the hands of the experts, as opposed to the hands of politicians.
So I think for that you got to say it was a masterstroke. What else have they done? I think there’s stuff they could do on stamp duty. And I think there’s more they could do around the affordable key worker market. Which they’ve got to stop talking about, they’ve got to stop saying how many hundreds of millions they’re going to commit and get on with it. And really listen to people who know in the market what’s nee- ded. What types of products are needed what types of schemes are needed to get these people onto the housing ladder. There’s a lot of talk and not a great deal of delivery
What you think is the biggest single issue affecting housing market? Is it a shortage of new houses being built or not helping first-time buyers enough?
I think the biggest problem is the lack of affordable properties because, ultimately, today’s first-time buyers are tomorrow’s second-time buyers and so on. If you haven’t got enough people coming in at the bottom, you’ve got a risk of creating a stagnant market. So I think that’s where we’ve got to focus all our energies and channel our energies. We could have just thought, well, actually, it doesn’t bother us we are a high-net- worth brokerage. But we were determined to make our mark on that sector by buying Sherwins. I think that is where we all have an obligation to look at that market.
That is where we all came from. We were all first-time buyers and I think that’s probably the biggest challenge.
Its been 10 years now since the start of Savills Private Finance. Do you see yourself with Savills for another 10?
Yes, if they’ll have me I would love to think that in 10 years time, I’d be having this conversation again.
Definitely, I don’t see any reason why not.