The Bigger Issue
Bigger isn’t necessarily be Are lenders right to think about limiting their distribution to larger networks?
Lack of availability of funding has been one of the key drivers in the market for several years, and as a result, lenders now want to look at whether they should ration the funds that they offer to the market and so turning to their larger customers is one inevitable strategy available. This rationing has the irrefutable advantage that a limited pool of advisers allows more volume control, but does potentially damage longer term relationships if advisers within smaller networks can no longer access those lenders. Ultimately it’s a zero sum game if all the smaller networks disappear and the lending ends up in the hands of larger networks. However, it’s only the time it takes that slows things down in the short term and lenders do indeed lend less by restricting access. NatWest recently made the decision not to distribute to some smaller networks and it will be interesting to see how this ultimately plays out.
The other considerations that lenders will be factoring into distribution debates will be the quality and solvency of their distribution partners.I have mentioned elsewhere in statements I have made recently that the Financial Services Authority is focusing its attention on lenders’ third party due diligence including not just solicitors and valuers but also brokers. It is not surprising therefore that if quality, systems and controls are key requirements to do business in the future, then lenders will look at their largest partners first. There is still much more work to do in this area but I believe over the longer term the largest distribution businesses will be the ones with capital and scale to meet the new requirements. Simultaneously, it must not be forgotten that the directly authorised market makes up about half of the intermediary sector. As such, this market must evolve to keep pace with competition in this arena and needs to develop systems to ensure that lenders can still distribute to the directly authorised
market.New models will emerge to meet lenders’ requirements where either access to
John Cupis, managing director, PMS
limited funding or quality
considerations are paramount.
The expectations for the housing market in 2012 are that it will be broadly similar to 2011. Similar in that it is predicted that activity levels will remain subdued relative to historic levels and that the economic situation will continue to act as a drag on activity by both borrowers and lenders. While mortgage lenders still have targets, depending on their appetite, some will want to increase the amount of lending they do this year. But others are looking to maintain their market share and some even want to quietly reduce it. There are a number of new lenders who are expected to launch in 2012, and in years past this would have resulted in fierce pricing competition, as lenders fought to hit their targets. But in this market it is less about the volumes being carried out and more about the quality of the business being written.
Many lenders are now looking for the control that comes
from limiting their distribution. It is not necessarily the case that the quality of business which comes from the larger networks is any better than it is from a directly authorised one-man band, but there is a perception that if there is a problem the lender can go to the network in the first instance and they will address it for them. From a cost-effectiveness point of view too it can be easier to limit distribution to a select number of networks as there are fewer points of contact. Many lenders will have relationships with some of the bigger networks that include high-level information sharing and are more of a partnership than with mass market distribution.
Lenders want to ensure the people they would like to be applying for mortgages with them can still get access – so the size of the distributor is a factor – but they also want to be able to open and close business channels as they monitor business
flows.Limiting their distribution allows them to do just this. Lenders can be expected to continue to put specific products through select groups and they are quite within their remit to do so.
Brian Murphy, head of lending at Mortgage Advice Bureau
28 MORTGAGE INTRODUCER MARCH 2012
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