Kevin Friend, strategic partnerships director at Primrose, says lenders have had no choice but to react to market change and new lenders, as well as shrinking margins and increased costs.
But Friend says lenders also acknowledge that distributors have been largely responsible for the growth and success of the sub-prime sector. He adds that the packaging sector has thrived from the sale of mortgages to customers who have been able to refinance or purchase properties at rates that now are as low as the Bank of England base rate.
Friend says: “Various lenders have adopted different strategies. However, it is clear that an aggressive direct-to-intermediary strategy is not encouraging best practice when offering choice to customers. Lenders promote their products via sourcing systems. But the recognised product sourcing systems took years to refine their offering to accommodate the prime market, and can’t be relied upon to accurately source products for broker’s clients with a complex financial history.”
Friend claims this is where distributors or packagers with experience of the sub-prime market’s requirements can play a major role in ensuring a more transparent process which assesses the product options on real up-to-date financial information and criteria.
He says: “Offering a cascade option from a single lender only is not embracing the principles of TCF. We know that brokers should research the market, but do they have the time to input the client data several times into lenders’ online systems? Some may have, but it is all too easy to have a cosy relationship direct with a lender with great technology and a friendly business development manager who sells against packagers because that is what their bonus is based upon.”
New entrants have certainly changed the shape of the sub-prime market. Product criteria and rates are more competitive and, says Friend, this should all be good news – but only if these products are made available to consumers.
He adds: “The value of a distributor who has invested in technology must not be underestimated. Intermediaries’ relationships with traditional packagers who influence the advice given to customers must be looked at in the same way as lenders who target intermediaries direct.”
Friend points out that GMAC-RFC has acknowledged that the margins earned by distributors on mainstream business were not sufficient. This, he says, was one reason for the launch of its ‘Partners’ range exclusively for packagers. While he says that not everyone in the industry was happy about the launch of the range its success has been clear, with record completions last year.
This does not mean lenders will suddenly adopt consistent or common practices in terms of the way they target their routes to market. Friend says competition will still drive innovation and change.
Meanwhile, he says, distributors that offer greater choice in product research and compliance services are likely to succeed in the mortgage market.
Friend says that the Financial Services Authority might also be the driving force behind the success of distributors. In a recent audit conducted by the FSA on the sale of sub-prime mortgages, 80% of the loans sold had no evidence that a sufficient market representation had been researched.
And he adds: “The often aggressive targeting of intermediaries encouraging them to have direct relationships with lenders will be looked at.”