Regulation of the mortgage and general insurance markets has created opportunities as well as pressures for the mortgage intermediary. It has also resulted in significant membership distribution changes between nine of the largest mortgage networks over the past six months, according to a poll carried out in November by Paragon Mortgages.
It noted a rise in support for smaller mortgage networks that offer specific expertise and put an emphasis on service to advisers in the wake of the new regulations. John Heron, managing director of Paragon, commented in a press release in late November: “Our report indicates that over the last year, and in particular the last six months, there has been a marked shift in support for mortgage networks. Since regulation, the shape of the UK mortgage industry has changed and there seems to be a rise in support for small mortgage networks that offer specific expertise and put an emphasis on service to advisers in the wake of the new regulations.”
There has been a lot of propaganda about networks over the past year, mostly about numbers, profitability and the huge difference in strategy. Rarely has the size of distribution been mentioned or measured to give brokers an idea of the size and buying power of their chosen network.
I do think this year will bring further consolidation and some of the smaller networks could find it hard to survive. For the appointed representative, being part of a strong established brand has huge reputational advantages.
Networks will play an increasingly important role for lenders and members in the future. But to be successful it is vital to build proper long-term relationships and business partnerships that increase profitability for both the network and the broker whether they be an AR or directly authorised.
We are now in an age where a vast amount of decisions can be made electronically. Last year witnessed the unveiling of a number of e-commerce facilities, including online decisions-in-principle, real-time case-tracking and so forth. As technology becomes more streamlined the time taken over a mortgage has been cut, giving brokers more free time. They can spend this additional time developing new relationships “This year might also see network members take a step back and assess their position, especially as their business may have grown”with clients, enhancing existing relationships, exploring new ways of adding value or to investigate new revenue sources.
The Intermediary Mortgage Lenders Association has identified technology as being crucial and says it intends to foster stronger relationships between lenders and intermediaries in 2007. It plans to support the development of new technology applications and solutions to benefit all parties and to develop new dialogues with packagers.
This year might also see network members take a step back and assess their position, especially as their businesses may have grown substantially in the past year. The grass is always greener on the other side and whichever route a broker has chosen there will be times when they reconsider their options and look at becoming an AR or vice versa. This is good, as in any business you should always check that your offering and strategy are still competitive and that they have moved ahead with the times.
As the new mortgage world has taken shape we have seen innovative developments from the distribution channels to ensure their survival and continued growth. One factor everyone has in common and which links all aspects of the industry is technology and those lenders that have not taken the time to offer an online proposition have suffered as a result. No lender can now afford not to have an online proposition.
Hopefully competition between providers to acquire new borrowers will continue to escalate in 2007 and encourage lenders to maintain market-leading rates. As margins become tighter and competition stiffens in the market, brokers and lenders will come under increasing pressure to cut operating costs. This too will continue to drive some brokers into networks and clubs.
That said, brokers are more streetwise than ever as to a network’s offering and whether that strategy suits their business model. Networks, too, have a better understanding of the true cost of running their business and can assess whether their models are profitable. But for some, the numbers do not stack up and they will be forced to slash costs or place a greater financial burden on the broker. Currently, few networks are trading profitably. It stands to reason that those making a loss are less likely to invest heavily where it matters – in technology, compliance and training – as they struggle to cope with competitive pressures and balancing the books.
By Sally Laker, managing director, Mortgage Intelligence