High on the industry’s list of new year’s resolutions should be a much-needed make-over. While record numbers of young people are opting for sexy careers in media and marketing, the mortgage industry is in grave danger of stagnating through a lack of vital new life-blood.
This is compounded by too many advisers exiting the industry because of retirement or as a reaction to what many feel is the introduction of overly restrictive regulation. The rising premium for good advisers will force more networks with inferior propositions to start brandishing their cheque books to retain and recruit productive brokers. Just remember that somebody somewhere will be paying for these bribes – and chances are it is the brokers themselves through the fine detail of the contracts they are being offered.
Poaching good advisers is rife in our industry. But reckless networks are creating inflation in our specialist economy. What concerns me is that networks will pull the plug on training for fear of their trainees being poached by competitors.
Ours is a cutthroat environment, and networks should not be adding to the competitive pressures by burdening brokers with debt nor with a stranglehold of contractual red tape. We work in a prosperous industry and provide a desirable service to our clients.
Instead of offering hollow incentives, networks should focus on creating a transparent arrangement for brokers that will help them grow their business. With mutual respect, networks and advisers can enjoy a profitable working relationship without placing unnecessary strains on each other’s businesses.
Meanwhile, lenders are responding well to market changes and consumer demand. In particular they have got the message that first-time buyers need a greater choice of products – if we want new blood stimulating the market, that is. Abbey’s headline-grabbing shift in its position on income multiples has led the way. Others will surely follow.
Another major development has been the launch by Advantage of the first shared equity scheme . This gives us a glimpse of the shape of things to come if property prices carry on rising. It makes perfect sense for lenders to invest directly in property, while managing risk alongside mortgage cash flows. If UK property continues to be seen as ” Instead of offering hollow incentives, networks should be creating a transparent arrangement for brokers to help them grow their business”a sound long-term investment, this could be the way forward for product innovation.
Another sector of the market set for significant growth in 2007 is sub-prime. Massive house price inflation and rising levels of debt contribute to the surge in interest, while the cyclical downturn in prime business means that other lenders will soon join the market. There was a 13% rise in sub-prime lending in November from October, so its surely a matter of time before we see the big names wanting their slice of the pie. Halifax through BM Solutions has been a pioneer since 2001 and edeus is rewriting the sub-prime rules – so watch this space as the others follow.
Such a buoyant market will lead to further consolidation across the industry. Competitive pressures will see networks, packagers and lenders seeking greater efficiencies, and economies of scale is one way to achieve this. Realistically, only networks with 200-plus sellers can generate enough profit to survive.
Technological shifts in 2006 include the first online binding instant offer by GMAC-RFC through an automated valuation model from Hometrack and instant offer technology from edeus, while Halifax launched a retention strategy that makes customer information available to intermediaries for the first time. That Halifax will pay intermediaries for providing this service to their customers makes it another breakthrough that could revolutionise the way we all work.
The fast pace of change ahead has implications for the whole industry and I believe they are positive. We’d like to think one could finally see insurance companies close their sales forces in 2007 as they seek other more cost effective distribution solutions.
Consolidation and specialisation allow businesses to concentrate on what they understand. Recent examples include specialists Friends Provident and St James Place Capital, which have displayed real vision by changing their business models to focus on their core markets.
Friends Provident and Axa have invested in new distribution models, proving that however devoted the parent company – and in 2006 it was clear that many firms would continue to support even loss-making distribution models – ultimately, profitability, not turnover, is the most important factor.
The new year has already seen some high-level vacancies. Look out for some real pressure on leadership and vision in 2007. There will be casualties.
By Gerry O’Brien, managing director, Home of Choice