Paradigm Mortgage Services has been in existence for just 10 years but, given the changes that have taken place in the industry during that time, it may seem to some like decades longer.
The club was launched as part of Paradigm Partners, the brainchild of Bankhall founder Paul Hogarth, in September 2007. The timing of the launch was to prove inauspicious because, within days of the new distributor opening its doors, Northern Rock had begun the process of closing its own.
Nevertheless, Paradigm has succeeded where many others have failed, thanks to – or in spite of – a combination of factors: launching at a time that could have spelled near-instant demise; having staff on board with both market experience and ambition; and being possessed of a great deal of gumption.
Most of the same faces on board in the early months remain
at the helm, namely chief executive Bob Hunt, head of mortgages John Coffield and mortgages technical director Christine Newell.
Of the rationale to persevere with the new firm at a time when many others would have stepped away, Hunt, who was approached by Hogarth to join while the latter was at Abbey for Intermediaries (now Santander), says: “The world was quite different then. In 2007 we were still pre-MMR.
“It was a different interest rate environment and lenders were, arguably, in a more profitable position than they are today, and were quite keen to see more choice in distribution.
“Paul (Hogarth) set up Bankhall Group from scratch in ’93 and, in his final years there, as he was selling to Skandia, he went on the board and saw how providers viewed the world, and the restrictions and limitations, and I think he found that quite frustrating so he decided to come back to distribution.”
We were profit sharing from day one
Having convinced Hunt to join his new venture, next on Hogarth’s agenda was to sign up his former Abbey colleague, John Coffield – who was at that point at the helm of The Mortgage Alliance – as head of mortgages.
Of course, key to the success of any distribution business is securing members to build the proposition. Newell, at the time with HBOS, had a wealth of contacts and was a perfect fit for the new firm. Then it was all systems go.
“We set about readying the proposition and launched on 27 September, which I think was the same week that there were queues outside Northern Rock,” says Hunt.
“So, six weeks in to the first of the financial difficulties that became the crunch of 2008, we decided to launch a distribution service.”
Hunt explains that a decade ago there were ‘sticker clubs’ in the mortgage industry that allowed brokers to get paid “a little bit of over-ride” on activities.
“But it wasn’t structured in any way so lenders were looking for more valuable relationships that allowed them to influence the behaviour of intermediaries, via a distributor, without compromising their best advice,” he says.
Coffield adds: “Back then in the mortgage club world, it was one-size-fits-all; whether you were doing two cases a month with a club, or 100, you more or less got the same service and benefit out of it. We wanted to change that.”
So Paradigm launched as an aggregator with suppliers and charged for services above pure aggregation.
However, it had a unique appeal to firms as a limited liability partnership. Membership of the club was split into two levels, associate partnership and full partnership, providing firms with a share in the incremental revenue generated in an annual rebate, and acquiring loyalty by default.
“From day one, our firms weren’t considered to have just a registration with us that would allow them to click through to a lender,” says Hunt. “We looked at earnings and asked what services they needed.
“So, if they needed compliance support and that cost X amount per month, and we were earning on the back of their activities Y amount a month, we could supply those services, take the cost off what we were earning, and share that. So we were profit sharing from day one.”
Coffield adds: “We wanted to take away the promiscuity that so many mortgage brokers had at the time.”
“In 2007, they would have had payment roots through at least half a dozen mortgage clubs. There was no commitment to any particular club; they would chase exclusives around, despite the fact these were just core products with a slight tweak. We wanted to communicate to the market that [we were] different.”
We were one of the first firms out there to talk about quality
Coffield continues: “Prior to forming Paradigm I worked with Bob in the Abbey Group. I was head of TMA, Abbey’s mortgage club, and then Santander’s, and it was really just the numbers game. I was always trying to chase the next exclusive to give to our members but lenders would say ‘This week it’s TMA’s turn, next week it’s PMS, then Simplybiz,” and so on.
“It didn’t provide anything of value to lenders or brokers and we were trying to bring in loyalty to drive up quality. We were one of the first firms out there to talk about quality.”
In the year of the firm’s launch the UK mortgage market was worth around £357bn, according to Council of Mortgage Lenders figures, but it was clear that change was coming.
“When I joined,” says Newell, “I had been with the HBOS group in the BM brand looking after the subprime sector. I was mainly based in London and the South-east and had an idea of what kinds of firm would come over. Within a couple of weeks of starting it was obvious something wasn’t right in the market.
“We had to cut our cloth accordingly in terms of recruitment into Paradigm. A lot of firms were thinking about survival. Every day by 2008 lenders were withdrawing from different parts of the market and, instead of products changing every day, it was criteria. I ploughed all of my brain power into learning 25 different lenders’ criteria.
“It was obvious that brokers needed help because they didn’t know where to place a case that had fallen through because a lender might have withdrawn from the market without any notification. It was a strain for a lot of DA firms that didn’t have the support.”
From the dizzying heights of £357bn the industry plunged dramatically, hitting a low of £134bn in 2010. Paradigm has endured, however. Today it has 1,034 DA firms, and counting.
“Our biggest challenge by far was the credit crunch, because it was about survival — not adaptation, in the way that regulation is,” says Coffield.
Hunt adds: “It forced the pace of our differentiation. It forced us to press home our value, consistency and loyalty.”
In July this year, Paradigm experienced what Hunt refers to as a “rebirth” when its parent, Tatton Asset Management, floated on the Alternative Investment Market following an initial public offering of £87.2m. The business as a whole sits on about £4bn of assets.
Although tight-lipped on Paradigm’s plans for the future as a Plc, the trio believe that the core values of quality and service that the firm set out to deliver in 2007 will continue.
“We’ve formed a new business called Tatton Asset Management — a holding business,” says Hunt. “We brought our three entities together: Paradigm Mortgage Services, Paradigm Partners and Tatton Capital Management, which is a discretionary fund management business that sits on, I believe currently, 10 wraps and can use any of the investment houses and platforms.
“The float was a big moment for us; it created capital. So some of the shareholders and member firms that are equity partners have benefited from shares and equity.”
Hunt says the parent vehicle will allow Paradigm to “do things we’ve never done before”, one of which is, potentially, to join forces with a valuation firm.
“It’s definitely not a full stop,” he says. “It really gives us an opportunity to expand the business and grow with our investors. We’re looking at maybe working with a valuation business, and to organically grow.
“We’ve just gone about our business; we haven’t spoken much about the float. If you silently get on with it, by the time your competitors find out what you’re doing you’ve done it.”
The team also hope to build on Paradigm’s technology offering as the world moves in a more digital direction.
“It would be remiss of any mortgage distributor not to be looking at technology opportunities for brokers in the coming years,” says Coffield.
“And going back to one of our premises – how do we work with brokers and help them to grow and develop? – we need to interpret that for them and look at how it fits in, and balance tradition with technology. We don’t see technology as a threat; we see it as an opportunity to become more efficient.”
In addition, the team believe that continuity of personnel will be an asset to the firm.
“Every time I hear of a firm getting floated or sold, the management team changes,” says Newell. “But we are staying put.
“The ethos will be the same. It’s continuity, and that’s what matters to our lender firms.”
The credit crunch forced the pace of our differentiation. It forced us to press home our value, consistency and loyalty
Paradigm also plans to expand its methods of helping brokers to navigate regulatory challenges, such as those currently facing the buy-to-let sector.
“We’ve got a number of documents on our site that detail for brokers where affordability in the BTL space works, and how taxation works, and we’re making it easy to see which lenders will do portfolio lending,” says Newell.
“Things around GDPR [General Data Protection Regulation] and the Insurance Distribution Directive are all going to be changes that will hit the mortgage market and we’re doing work on those as well as the Senior Managers Regime. We’ve just developed a supervisor model so people can come to us and learn how to deal with the regime correctly.”
On the FCA’s competition review, Hunt says Paradigm was not consulted, possibly because it is not a regulated entity.
However, the firm has been very clear with members and lender firms on what it deems appropriate behaviour.
“We’re very transparent,” he says. “We tell people when there’s a problem so they can change their behaviour or not work in our industry.
“I can see only good coming from the FCA’s review; the world is a much better place today because of regulation. We have much more responsible lending now.”
“The MMR [Mortgage Market Review] means we’re now a far more professional industry,” adds Coffield.
We’ve done what we set out to do and that’s a very satisfying feeling
“When we were setting out, there were still people in the industry who hadn’t taken exams. Now there is a much better customer outcome, which has got to be good for everyone.”
The trio believe there has never been a better time to be in the mortgage industry. “It’s a great time to be an intermediary and a distributor,” says Hunt.
“Lenders have introduced retention policies. Some of them are yet to clarify what that actually means but, if you go back a few years ago, the likes of HSBC said they were never going to work with intermediaries, and suddenly they see the value they offer and are having to build systems and phase their entry.
“If you are an intermediary, you’re in a very strong place at the moment.”
Coffield adds: “We’ve done what we set out to do and that’s a very satisfying feeling. This time 10 years ago we couldn’t foresee what the market would do. We’ve all had challenges and strains but have come out of it a lot better and stronger; a few scars, but better overall.”
CV – Bob Hunt
1978 – 1982 Engineer, RAF
1982 – 1985 IFA
1985 – 1994 Management roles, Hill Samuel Group
1994 – 2002 Regional director, ANFIS/Scottish Mutual
2002 – 2006 Director, Abbey for Intermediaries
2006 – present Chief executive, Paradigm Mortgage Services
Place of birth: Sorrento… according to my birth certificate, but actually it was a maternity hospital in Birmingham!
Hobbies: Cycling — have just completed Bordeaux to Barcelona (four days back to back over the Pyrenees)
Favourite band: Most artists — I grew up on David Bowie, Stevie Wonder and Jam; today I favour Frank Ocean
CV – Christine Newell
1990 – 2001 HBOS/Lloyds Banking Group Retail
2001 – 2007 HBOS/Lloyds Banking Group Intermediary
2007 to present: Mortgages technical director, Paradigm Mortgage Services
Place of birth: St Eval RAF Base, Cornwall
Hobbies: Dancing, riding vintage scooters
Favourite band: The Who
CV – John Coffield
1983 – 1986 Life inspector, Royal Life Insurance
1986 – 1988 Life consultant, LAS Group
1989 – 1991 Life consultant, Friends Provident
1991 – 2000 Sales manager, Friends Provident
2000 – 2003 Regional sales manager, Scottish Mutual
2003 – 2005 Business lead for CRM implementation,
Abbey for Intermediaries
2005 – 2006 Business manager, TMA
2006 – 2007 Head of TMA
2007 to present: Head of mortgages, Paradigm Mortgage Services
Place of birth: Glasgow
Hobbies: Music, reading, cinema, rugby, time with family
Favourite band: Bruce Springsteen & the E Street Band