An unexpected journey

At 6ft 5ins tall, Lloyds Banking Group’s intermediary director Mike Jones is unlikely to be asked to play a hobbit, even after a chance encounter with Gandalf (aka actor Sir Ian McKellen), so what path is the ‘intermediary man’ destined to take?

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“He was fascinating company and just delightful,” says Lloyds Banking Group’s intermediary director and newly appointed Scottish Widows Bank managing director Mike Jones of a chance meeting he had with actor Sir Ian McKellan just before Christmas.

Jones had spied the actor on the plane they had both taken down from Edinburgh to London.

With Jones owning a flat about 50 yards from where McKellan lives in the Docklands region of London, he thought it was only polite to offer the actor a lift when he saw him walk off with his bag.

“He did that thing where he was on a plane, he knew we all knew who he was but he was not going to catch our eye. And when I saw him walk off with his bag I thought the least I can do is give him a lift in the taxi,” he says.

“So we had a lovely chat in the taxi back so my favourite film is now The Hobbit because he told me it is.”

The encounter neatly sums up the attitude the Lloyds giant – Jones stands at 6ft 5ins – takes to dealing with people in general and the strategy he has taken to engaging with the intermediary market since he first transferred from being Lloyds TSB’s retail network director two years ago.

When I ask Jones what advice he give to his past self two years ago just as he was about switch from working in its branch network to its intermediary distribution, he says he would tell his past self to spend more time getting out and meeting people in the market.

“The best advice taking a new job is always to go out and meet the people,” he says.

“My advice to myself two years ago should have been to spend more time externally than I did internally to understand the market.”

But to be fair, when he first arrived, he was viewed with suspicion by many in the market.

Jones had been brought in to become Lloyds’ mortgage sales director in October 2010, replacing Nigel Stockton, who had left to join estate agency giant Countrywide as its financial services director.

With the UK mortgage market in a bad state at that point, there were panicked rumours that the appointment of Jones, with his history working in the lender’s branch network, was a sign the UK’s biggest lender intended to turn its back on intermediaries.

When Mortgage Strategy interviewed him at the end of January 2011, we called him “a company man” and the main focus was on his 26-year history at the bank, having joined its graduate scheme from Cambridge University in 1985.

At the time, many in the intermediary market were wary of outsiders and especially the threat that the top five lenders posed by choosing to favour their branch network. There was a general air of despair that lingered around both the market and borrower appetite for mortgages.

But two years later, the market has been generally transformed by the Funding for Lending Scheme. And while Jones is still a company man, he is now also an intermediary man.

Changing role

“The world has moved an awful lot since I took on this role in October 2010,” he says.

In his 2011 interview with Mortgage Strategy, Jones pointed out that while he had taken over Stockton’s role and job title, there was a significant difference. While Stockton had managed Lloyds’ intermediary, telephony and internet businesses, his interest stopped at the branch network so he did not have anything to do with that.

Unsurprisingly, with Jones’ branch background, he had a major interest and was accountable but not specifically responsible for it. In other words, somebody else was in charge of the branch network but it was his responsibility that they did it well.

But six months on from the middle of 2011, his role changed again so that his focus was entirely on intermediaries.

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Mike Jones: “The best advice taking a new job is always to go out and meet the people”

“I was involved at the outset in a lot of things to do with mortgages in the branch network, effectively setting out a strategy about how we could improve,” he says.

“As that job finished, I moved on to focusing purely on intermediaries – so part of the job became all of the job.”

He also now has two business cards with his appointment as managing director of Scottish Widows Bank at the beginning of this year.

The brand had been part of the portfolio of Lloyds Banking Group intermediary brands Jones had been involved with since the mid-2011.

But his taking direct control as its managing director is a sign of a strategic change at Scottish Widows Banks.

“It is a flexible business and it was a business focused on acquiring deposits last year, largely through intermediaries, and as a consequence we deprioritised mortgages,” he says.

“So, in our ambition to grow our share of the mortgage market, we are now growing mortgages and deprioritising savings.”

Healthy buy-to-let market

One of the areas that he picked up on as a concern when Mortgage Strategy last spoke to Jones at the beginning of 2011 was the lack of competition in the buy-to-let market.

Back then, BM Solutions and The Mortgage Works were the two main dominant lenders in the market, which he described as “not a particularly healthy place to be”.

“People talk about how good it is to have competition and in the buy-to-let world I believe that is absolutely true,” he said at the time.

So have we got that competition now?

“We absolutely have,” he says. “It is central to the health of the UK housing market. And from what I regard as an unhealthy place around 2010 in terms of the number of market participants who were lending significant amounts in the market, I think we have got a hugely more balanced and effective market today.

“While we remain a big player, we are now in a much more comfortable place alongside a number of other big players too.”

At the beginning of January, Mortgage Strategy reported that Lloyds Banking Group was rumoured to be looking to increase buy-to-let as a proportion of lending to around 21 per cent compared with 17 per cent in 2012.

At the halfway stage of 2012, Lloyds had lent around £12.3bn in total, with around £2bn of that being buy-to-let business. The previous year, it lent around £28bn in total.

Lloyds would not confirm whether the percentage increase was correct but that it was looking to boost lending.

“Some figures have been quoted, that’s not what we have chosen to say,” he says.

“We regard to buy-to-let as a market, that is naturally growing quite quickly. We are keen to push on with our share of that market, in other words, as the market grows, we want to grow with it but we want to grow faster than it – that is absolutely true.”

Which is great news as the buy-to-let figures from the Council of Mortgage Lenders show in 2012, buy-to-let lending accounted for 11.5 per cent of total gross mortgage lending, up from 9.8 per cent in 2011.

At £16.4bn, gross buy-to-let lending was 19 per cent higher than the £13.8bn advanced in 2011, reaching its highest level for four years.

Relaxing underwriting

But as many have pointed out, if Lloyds wants to expand its buy-to-let lending in 2013 faster than the buy-to-let market is already growing, then slashing rates alone will not achieve this.

Back in 2010, when Jones was last interviewed by Mortgage Strategy, Lloyds had introduced a limit on the number of buy-to-let properties the borrower could have with it and Jones was of the opinion that underwriting restrictions were the right way to go.

Fast forward to 2013 and in recent months there have been rumours that BM Solutions is looking at the likes of removing the minimum income requirement or relaxing the number of properties that a landlord can have with the group to boost lending.

But so far, though, there has been no official change other than its announcement last week that it will provide finance to buy-to-let landlords with tenants on housing benefits.

Jones points out that BM Solutions has moved with the market on reducing its rates.  

But when it comes to underwriting criteria and specifically the current cap of three properties, he says when landlords start to built up the number of properties that they let out, from a lending point of view, you have to look at the portfolio of properties in their entirety rather than individually.

“We are not established to manage portfolios so the question is how far between one and something is the right answer to suit our appetite, so it is fair to say that is something that’s inevitably a consideration,” he says. “There’s not a rule to say three is the answer for ever. But there is no plan to change it today.”

Prioritising service

Where BM Solutions is consistently praised is in its service and specifically when it says yes on a case, that normally means it will sail through with little in the way of further complication.

But he says feedback from Halifax Intermediaries’ service has been less positive so a big push over the last two years has been to make it as good as BM Solutions’.

“We have put a lot of work in on Halifax where we thought we had a job to do,” he says.

“Issues were around whether a decision stuck and how slick the process was and how easy we were to deal was something that we thought we had to do better at.”

The focus, he says, was on correcting issues around confidence in a decision, speed to offer, the number of times it needed to contact people again for something that it had not asked for originally.

“Basic things like gathering all the information at the outset, being explicit about what that is, not changing your mind and going back for further information”, he says.

“These are all parts of the process that are utterly frustrating for brokers and they have choices so the best thing we can do is position ourselves as the easiest lender to deal with and the most predictable lender to deal with. We would like to be the one they go with first and stick with.”

Boost to the market

The big news story over the last eight months has been the Funding for Lending Scheme and Jones says he is a “huge fan” of it.

But along with savers concerned at the negative effect the FLS has had on savings rates, there have also been concerns as to whether this is actually feeding through to lending.

While gross mortgage lending for 2012 was up from £140bn in 2011 to £143bn in 2012, predictions of gross mortgage lending of £156bn for 2013 took a dent with the Council of Mortgage Lenders’ latest figures showing gross mortgage lending in January 2013 fell to £10.4bn, down from £11.4bn.

And the latest figures from the Bank of England on the FLS showing cumulative net lending since it first launched were also gloomy. All 39 lenders enrolled in the FLS saw negative net lending of -£2.4bn and since it was first launched on the 30 June 2012, overall negative net lending of -£1.5bn.

Lloyds has drawn down £3bn via the scheme from the £22bn it can access. But since the end of June, it has seen negative net lending of -£5.6bn, with -£3.1bn in the last quarter alone.

“There have been mixed commentaries about whether FLS is working and that is from the likes of politicians and the media,” he says. “The truth is that the evidence is often seen in completions and it is one of those things that takes a while to come through.”

He argues that there has been a behavioural change in the mortgage market in the terms of the competitiveness of mortgage products on the market.

He also warns that not continuing to borrow from the scheme could see things reverse quickly, which has echoes of the outgoing governor of the Bank of England Mervyn King’s response to the Treasury Select Committee last week about the FLS, when he argued that things would be a lot worse without it.

With regards to whether there needs to be an FLS 2, Jones says Lloyds liquidity position has changed dramatically over the last few years, with its loan to deposit ratio approaching 100 per cent for its core business and 120 per cent for the group as a whole, which has been achieved through more customer deposits by removing non-core lending from its balance sheets.

So it is in a much better place than it was but that does not get away from the question about what happens when the FLS closes this year and what happens when FLS funds need to be repaid, under the terms of the scheme, in four years time.

“I would imagine the policy-makers will be looking at that with interest and realising that something needs to be done at some point in the future, unless the world has moved on so much by then”, he says.

As to whether we will start to see positive net lending rather than negative net lending from Lloyds, he is positive it will come.

“There is a price to be paid if the net total for all of those falls – we have been on decreasing trend for mortgages,” he says.

Under the terms of the FLS, the price of each bank’s borrowing in the scheme will depend on its net lending between 30 June 2012 and the end of 2013.

For banks maintaining or expanding their lending over that period, the fee will be 0.25 per cent a year on the amount borrowed.

For banks whose lending declines, the fee will go up by 0.25 per cent for each 1 per cent fall in lending up to a maximum fee of 1.5 per cent of the amount borrowed for banks that contract their stock of lending by 5 per cent or more.

“The FLS is a real driver to lend more and I would expect that to move more positively than it has done in the last few years,” he says.

Regulatory changes

Undoubtedly, the biggest thing to have occurred over the period that Jones has been in charge has been the Mortgage Market Review.

While he concedes it will change the industry, he points out that there are lots of good things in the MMR, chiefly through the way the industry has engaged with the FSA.

“Everyone involved should be proud of the fact that we got to a sensible place at the end of this,” he says.

On interest-only, he argues that the MMR has come to a good position.

But as to whether interest-only will be the big problem that claims management companies are hyping it up to be, he firmly disagrees.

“We are shortly to find out what the FSA thinks about interest-only,” he says, referring to the regulator’s much anticipated review of the interest-only that was announced with the final MMR rules. I have no doubt about two things, one is that there will be situations where a reasonable person will say wrong has been done here. But there will be a unique set of circumstances that apply to that specific case – I am equally confident that in the overwhelming majority of cases, it has been done properly.

“And to recognise even the question of how do you prove detriment to somebody which is what you might compensate someone for, when they have had the right to live free in this house over the last 25 years without ever having to buy it – it’s a very different to other situations in the media today.”

“For several years now, we have taken a lead in this industry to say what happened was wrong and we will fix it around payment protection insurance. I see interest-only in a completely different light.”

With regards to what lenders can do to help people on interest-only, talking to borrowers about their situation at the earliest possible instance is the first step. He firmly believes that by working with borrowers to move all or part of their mortgage to repayment at some point will be possible to find solutions for most people.

“People will live up to their obligations and we do our best to help people in every situation they find themselves.”

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