The market is in desperate need of greater diversity and building societies are the agencies to provide it
Bradley Wiggins’s historic Tour de France victory acted as the perfect prelude to the Olympics. Inspired by Wiggins’ performance, the GB cycling team notched-up win after win showing that when it comes to pedal power they are, without doubt, masters of their game.
It seems strange that in sport, it has taken for granted that being part of a small, focused and specialist team is acknowledged as the best route to success, whereas in the world of financial services simply being big has always been viewed as best.
However, some are now questioning that perceived wisdom. The big six mortgage lenders may dominate the UK mortgage market but their dominance is neither healthy for the market which is now suffering from a dangerous lack of diversity, nor is it good for borrowers, especially those whose requirements fall outside their narrow criteria.
What is more, ongoing balance sheet issues have diminished the big banks’ appetite to lend, forcing the government to introduce the Funding for Lending scheme to encourage banks to make more funds available to businesses and homeowners.
Intermediaries, who generate over half of all new mortgages, are acutely aware of this over-dependence on the big lenders. The market needs more lenders, more products and, perhaps most importantly, a fresh approach to the way in which borrowers’ needs are met.
The good news is that new lenders such as Tesco, Marks & Spencer and Virgin Money have entered the market.
It remains to be seen whether they will follow the big six for low LTV prime business using a conveyor belt credit scoring approach to underwriting.
Competition has to be welcomed but this will not produce the greater diversity that the market so desperately needs.
We have also seen new names such as Metro and Aldermore launch mortgage propositions. As they as they are few in number, their overall impact is inevitably modest.
So where will the much needed diversity come from? The answer is hardly new and has been around for generations – it is of course, building societies.
Societies understand the many factors influencing borrowing requirements in the regions they serve and are able to design products tailored to meet those specific needs. They are also able to work closely with intermediaries to provide a fast, reliable and more personal service.
But in common with most financial institutions, building societies now need to consider carefully how they position themselves to ensure their future success.
There is no point believing that small regional building societies can take on the big six lenders in a head-to-head rate war, because they don’t have the resources, either financially or otherwise, to do so. But, like Bradley Wiggins and the GB cycling team, they can focus on what they do best and use their specialist skills and knowledge to deliver exciting results in a market which is crying-out for fresh thinking.
The next cycle in the UK mortgage market will, I believe, see the re-emergence of building societies as the experts on which many ordinary but disenfranchised borrowers will be able to rely. In reality lending data from the CML shows this is already happening. The big players have no appetite for diversity and innovation. Many building societies do. They will be an increasing force in the market.