The recession has weeded out weak business models

Many firms have failed in the past couple of years but those that survive should be made of stronger stuff

CHARLES HARESNAPE
CHARLES HARESNAPE GROUP MORTGAGE SERVICES DIRECTOR CONNELLS

It was sad to read last week about the problems encountered by Home of Choice.

At the beginning of the year it seemed as though most networks had endured the worst of the recession and come out the other side.
But unfortunately, rather than spotting a light at the end of the tunnel this one could only see a train speeding towards it.

I hope there is not more bad news to come as this should be a time for building confidence We should be focussing on success stories rather than high-profile demises, Financial Services Authority fines and other dramatic incidents.

It’s time to build strength and move forward rather than dwell on past failures.

And indeed, while some networks have closed and others remain under threat, many large players are surviving and seeing opportunities grow.

The news that one of the big estate agency groups may buy Home of Choice is testimony to the diversity of these businesses in the current climate.

But one thing recent company failures have highlighted is a flight to quality.

For example, in the past few years we have seen many surveying businesses go bust without run-off professional indemnity cover, resulting in some lenders catching a cold on loss-making cases.

Understandably, this has resulted in lenders becoming more choosy when it comes to selecting valuation companies to act for them.

In the wake of the downturn it is essential for companies to demonstrate that they have sound financials and adequate PI cover, including run-off facilities for worst-case scenarios. In fact, this is likely to become the norm going forward.

Lenders have become more choosy when it comes to selecting valuation companies to act for them

Mortgage brokers have also reduced in number dramatically now that the remortgage and adverse markets are a shadow of their former selves.

This again has exposed weak business models and allowed stronger organisations to benefit from consolidation.

I have argued before that networks and clubs that hold proc fees on behalf of brokers should make use of client accounts, adopting a system similar to that used by solicitors.

This would help protect vital income for member firms in the event of the network or club going into administration.
I believe we are at a crossroads in our industry.

Stories of company failures continue to surface, house prices are slowing again based on a rolling three-month measure, house sales are up modestly year-on-year and lenders are continuing to struggle to produce high LTV mortgage products at affordable prices.

Having said that, I remain confident that after the general election the housing market will continue the steady growth pattern it assumed towards the end of last year and the early part of 2010.

Of course, there are likely to be boulders on the road to economic recovery – including a possible hostile public reaction to the austerity measures that will be upon us soon.

But the most important thing at the moment is to ensure firms take the right direction at the crossroads.