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Virgin territory

With Virgin’s Church House deal set to shake up retail banking, speculation is rife as to how this will play out in the intermediary channel.

A fter getting into banking by buying Church House Trust for £12.3m last week, Virgin Money is yet to confirm whether it plans to lend through intermediaries.

After a failed bid for Northern Rock in 2007, Church House gives Virgin the banking licence it needs to be able to offer mortgages and deposits.

Most brokers agree Virgin’s entry into the market will be good for competition but some doubt whether Virgin plans to sell through brokers.

Burwood managing director Peter Suttill believes Virgin’s strategy will only include IFA distribution if it acquires a branch network.

Another factor, says Suttill, is how quickly the company wants to expand. “If Virgin wants a reasonable presence over a fairly short period, it will have to do it through intermediaries.

“If it is prepared to have slow growth, then maybe it could do it in a homegrown way but that would be a long, arduous journey.

“IFAs seem like the obvious way for Virgin to get itself established in the mortgage market quickly .”

Coreco director Andrew Montlake says regardless of whether Virgin obtains a highstreet presence, harnessing the expertise of brokers would be wise.

He says: “If it wants to get the expertise quickly, then using brokers is certainly a sensible step.”

Largemortgageloans. com managing director Paul Welch does not believe Virgin will use brokers in the short term but will instead distribute its products directly, via branches.

However, Welch adds that Virgin might look to use brokers to expand its lending in the longer term: “The best route to lending in volume is via intermediaries. If you want fast growth, the intermediary market delivers that.”

‘IFAs seem like the obvious way for Virgin to get itself quickly established in the mortgage market’

Mortgages for Business managing director David Whittaker argues that public awareness of the Virgin brand might make it unnecessary to use brokers. He believes Virgin will look to distribute products directly to keep closer control.

He says: “Branson’s brands are highly consumer-facing. Distributing them through brokers, where he loses control of the customer-facing element, may be a step he might not take at the outset.”

Whittaker adds that Virgin would need to use brokers in the future if it wants to expand, as brokers distribute the majority of mortgages in the market.

Chadney Bulgin director of mortgages Jonathan Clarke also believes Virgin is unlikely to use brokers at first but may adopt this strategy over time.

He says: “I doubt initially Virgin will make products available to us. I think it will try some innovative products, which we will not have access to.
“What usually happens is that after a year or so, it might open up to us, but I would not expect it to go for intermediary products at the outset.”

Stroud & Swindon sales and marketing director Linda Will says Virgin is likely to grow the business slowly instead of aiming for an instant presence in the mortgage market with brokers.

She says: “Virgin has taken something quite small that just gives it the entry credentials. I suspect the plan would be to build that up gently.”

Mortgage Practitioner principal Danny Lovey says it is unlikely the other new entrants to the banking sector such as Tesco Finance and Metro Bank will use brokers, with the possible exception of National Australia Bank.

Lovey says this is because there is no incentive for any bank to be anything other than a prime lender, meaning they have less need for intermediaries.

He says: “It is very difficult, at this moment, to see where any non-conforming lenders will be able to return to the market.”

However, one firm eyeing up the UK mortgage market and which has expressly stated its intention to use brokers if it does decide to launch is
Aldermore. The company has just hired former Merrill Lynch subsidiary Wave’s ex-chief executive officer Colin Snowdon to investigate opportunities for entry.

Whittaker says: “It is a welcome development but, as much I love Aldermore, it has not got the balance sheet of Barclays‘z.”

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