Royal Bank of Scotland, along with subsidiary NatWest, has become the latest lender to acquire a stake in Mortgage Brain, taking the number of equity partners in the platform to four. With other major lenders poised to buy into the platform, do you think Mortgage Brain has “won” the technology battle?
Mawdsley: Certainly, the financial strength and credibility that these names bring to the party add to MBL's chances of success. However, I think it is far too early to predict winners and losers, especially when no one is quite sure whether the competition is a marathon or a decathlon.
There are also a number of key issues for the solution providers, whoever owns them, to address before they can even consider winning. In my experience, IT solutions always promise more than they can deliver both from a technical and user perspective. The problem for the user is that, however good or bad systems are, come 2003 they may not be able to trade without them. In my opinion, it would be best for the marketplace (and the customer) to have a threeor four-way draw. Competition usually has the effect of keeping all the contestants honest.
Cherry: All shareholders – including Nationwide, Halifax and Alliance & Leicester – are big hitters in the market, accounting for a large proportion of bulk mortgage sales. If Mortgage Brain can come up with an effective system for both lender and intermediary compliance in the run-up to N3, then it has to be a good proposition for lenders.
This will become increasingly attractive if further big-name lenders buy a stake, giving the proposition a higher profile in the marketplace. I do not believe it is a question of winning or losing, the principle at stake here is how lenders can get into shape to comply with regulatory requirements by next August.
Sandiford: It is good that more lenders are becoming part of Mortgage Brain. Mortgage Brain is already the market leader and we certainly believe that this platform will offer an industry standard solution.
Lynx Group is setting up a sister network to Bankhall, Point One, to give mortgage brokers access to exclusive deals and help them cope with compliance requirements after N3. Do you think it will prove a success, and can you see similar networks cropping up?
Mawdsley: There are now a number of mortgage broker networks being launched, all having broadly the same goals. It is not clear to me how this one will differentiate itself from others or how focused they will be on the needs of brokers in general rather than just Bank-hall members.
Undoubtedly, there are many brokers who are worried about what the market will look like after 2002 and are now starting to look for systems and organisations who will be able to help them. The question of success will depend on whe-ther this latest network is more than just a defensive move to prevent Bankhall members from using other compliance solutions. Whatever their motivations they will have a lot of ground to make up to achieve success.
Cherry: Networks are an excellent idea for smaller mortgage brokerages, as they can offer a one-stop shop service. This gives access to the benefits of scale that could otherwise only be enjoyed by the larger individual intermediary businesses.
Common sense dictates that the market for intermediary networks is not limitless. However, the secret of success for networks will lie in the strength of technological and communications infrastructures. The fact that the Lynx Group has proven expertise in this field may mean it is likely to succeed.
Sandiford: Whether Point One is a success or not rests with Lynx Group. Does it have the potential to be a success? Yes, I think it does. I believe we will also see other similar networks appearing in a bid to share the burden of regulation, minimise costs and further increase market competition.
Are packaging firms in danger of becoming obsolete in the mainstream mortgage market as lenders turn to technology in a bid to cut costs and control the product information given to borrowers?
Mawdsley: I am not sure that technology offers a guarantee to cut costs or that it provides a panacea for accurate product information. Post-2002, however, I believe that the environment for mortgage packagers will have changed.
Many of the smaller operators without a clear vision of what benefits they can deliver, together with an ability to deliver that vision to both lender and broker, will be marginalised. Those that flourish will need the capability to deliver greater added value to both parties.
As well as an efficient and dynamic mortgage processing capability, packagers will need to be more closely involved in both the FSA (and MCCB) compliance regime. Packagers are well known for their ability to place mortgages, those who believe that is all thereis to it will not be here in a year from now.
Cherry: Packagers perform a valuable service to lenders in the niche markets. As a wholly packager-introduced niche lending operation, SPML continues to enjoy record business levels thanks (in the main) to our strong packager partnerships.
I would argue that the primary role of packagers is to provide a flow of information inwards to lenders – this is, the back-up documentation for applications that enables them to be processed quickly and effectively.
Their role in providing an outbound channel for lenders' product information is somewhat secondary. Irrespective of how the role of packagers may evolve in mainstream lending, it is hard to envisage a niche market without packagers providing that vital link between lenders and advisers.
Sandiford: In short, there is a possibility that this scenario may well become a reality. With approaching regulation, lenders will find themselves under unprecedented pressure to manage compliance with regulatory requirements. Undoubtedly, many lenders will take control of their own destiny, so to speak, and ensure that they are in the driving seat in terms of meeting these demands.
Halifax has recently come under fire for attempting to cross-sell general insurance products to clients of IFAs and mortgage brokers without their knowledge. Should lenders be allowed to do this?
Mawdsley: Lenders who undertake this practice either do it unknowingly, in which case, they need to sort themselves out, or knowingly, in which case it depends on whether the brokers involved have an agreement allowing it to happen or not. My recommendation would be for brokers who do not want this to happen to put in place an agreement with lenders so that they do not cross-sell to their clients.
Very recently, some consumer pressure groups identified an increase in some lenders propensity to sell conditional insurance with their mortgages and in general have identified these deals as poor value. The chances are that the deals on offer are probably poor value, brokers who do a good job will have little to fear from these attempts at cross-selling.
Cherry: I cannot pass judgment on Halifax's business practices and the facts of this case appear to be far from clear cut, with Halifax claiming that it only cross-sells general insurance to brokers' customers if the brokers have not sold these products themselves.
However, it is a general rule that any lender wanting to sell through the intermediary market must understand how it works. Mortgage intermediaries are dependent on selling mortgage-related insurances for a substantial part of their income. Lenders that seek to deprive them of this income will soon find that their intermediary-introduced business will start to dry up.
Sandiford: Where application forms have not been properly completed Halifax has been contacting the customer. For example, if the application form does not contain property ins-urance details then they needed to find out who will be insuring the property. This is not something we would constitute as cross-selling.
Britannia and Yorkshire building societies have launched a branch-sharing initiative to enable their members to use the facilities of either company. Is an arrangement such as this restricted to the mutuality movement, or would a similar system appeal to the smaller banks?
Mawdsley: The decimation of the high street through the consolidation of bank and building society branches has been a PR disaster and left a lot of communities without “banking” facilities. This idea of resource sharing fits well with the building society movement's background of mutuality. So, perversely, the communities served by this new departure may take the building society back to its roots. I do not think we will see the major clearers follow suit, other than offering their current ability to pay bills and use ATMs.
Cherry: I don't really see this as a “mutuality” issue, it is more a question of whether this sort of strategic business partnership can be used as a model by other branch-based lenders. There is nothing to stop a mutual organisation from forming a branch-sharing partnership with a converted one.
I think we now all have to acknowledge that – despite the growing accessibility of mortgages via the phone and internet – the vast majority of mortgage applicants want face-to-face advice and support. Half of these consult advisers and half prefer to consult branch staff. Whatever makes life easier for the latter has got to be beneficial to the industry as a whole.
Sandiford: Clearly the issue here is not whether a financial institution has mutual or plc status. The problem being solved is the limitation of current distribution and, in particular, the breadth of this distribution.
Britannia and Yorkshire building societies have simply developed a common-sense solution to what has been an enduring problem for regional players with limited branch networks. I would suggest that the only reason banks have not explored this option is because, on a wider scale, they have expanded their distribution channels to include the internet, TV banking, post, telephone and other emerging technologies.
John Mawdsley,Managing director,Mortgage Partners
William Cherry, Managing director, SPML