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Special benefits

Exclusives can benefit lenders, brokers and consumers but they work best when designed with specific objectives in mind, says Harvey Jones

Everybody likes an exclusive, don’t they? A market-leading deal, unavailable anywhere else. The broker benefits, the lender benefits and most importantly the borrower benefits. What’s not to like?

But tabloid newspapers are not the only ones who recklessly splash the word exclusive over stories that aren’t unique to them. Brokers, packagers and lenders have been known to bandy the word around carelessly and are in danger of tarnishing it in the process. So what do exclusives really bring to the table and what are the pitfalls?

First we meet an out-and-out fan, David Copland, marketing director at Pink Home Loans. “I’m absolutely in favour of exclusives,” he says. “Pink’s ability to negotiate cutting-edge exclusives, to manage them and get funding from the lender is core to our business.”

Pink works to build up its stock of exclusives and its current range includes a self-cert flexible tracker with BM Solutions. “This charges base rate plus 0.89% with no early redemption charge and has been our best-selling product for the last two and a half years,” says Copland. “But when we first touted it around nobody wanted to know. Then I mentioned it to to Michael Bolton on a Saturday and by Monday he had funded the product. That shows the importance of being proactive.”

But any company offering an excluEsive must first first do its research.

“Some competitors go to a lender and ask for an exclusive but when they take it to market, nothing happens,” he says. “We do our research and check likely demand before putting together a proposal and asking lenders to source the product.”

Pink is also happy to dabble in semi-exclusives. “Sometimes you get lenders who pull together a product and offer it to two or three companies. These deals tend to be rate driven. We are less proactive in this case but if it’s a good deal, we’ll take it,” Copland says.

Pink demands one thing from every exclusive it offers. It has to improve on the lender’s core range. “This is a fundamental principle. Even if that means charging 4.95% instead of 4.99% it still gives us something to sell to the brokers,” he adds.

Tristan Pile, head of sales and marketing at Complete Mortgage & Loan Services, says well designed exclusives can stimulate interest and grow business in a targeted way. “Products that carry a lower interest rate than the lender’s core offering will appear higher up in the sourcing systems, creating a sales edge for brokers who offer them. It also helps boost the range of competitive products.”

Every product has a profit margin and lenders are willing to hand some of this to the borrower to stimulate business. “They might offer an adjustment to the product criteria or rate, a cashback or free legal, valuation and so on,” he says. “Often, lenders will allow packagers to design the details themselves within a fixed margin.”

The challenge is to offer maximum appeal within the lender’s fixed budget. Margins on mortgages are tight and a lower headline rate may come at the expense of a higher application fee, says Pile. Some deals come direct from the packager without lender involvement. “For example, we are currently offering free valuations, giving brokers an added selling point for their customers.”

Roger Taylor, director of sales and marketing at Preferred, says exclusives allow creativity.

“Exclusives allow intermediaries to be innovative in terms of product construction,” he says. “By designing products that sit outside a lender’s usual criteria they can cater for the demands of their particular marketplace. Our exclusives show our flexibility and understanding in meeting our customer’s needs. We offer some truly exclusive products and some that are shared between a small group of like-minded brokers.

“We work closely with our intermediaries to create products that fit our joint strategy. Relationship building is an important part of the process. Successful exclusives have a limited shelf life because they are produced in response to the changing marketplace and need to be updated regularly to reflect market trends.”

There are risks to offering exclusives. “You might design a tranche of funding into an attractive fixed rate but if base rates drop the packager or broker can get stuck with an over-priced and uncompetitive product,” he says. “But of course if rates go up the exclusive becomes even better value.”

Semi-exclusive deals also have their place. “Packaging groups such as Professional Mortgage Packagers Alliance can offer lenders bulk distribution, which creates the power to negotiate good exclusives for the whole membership,” he says.

The bottom line is that the borrower must benefit. “Simply increasing proc fees on a product would cross the line into buying extra business,” Pile adds.

Some packagers make a virtue of offering a huge range of exclusives. Payam Azadi, head of marketing at The Mortgage Times, claims it has 3,000 exclusive deals on Trigold and 1,500 on Mortgage Brain, of which around 30% are fully exclusive.

“We do 250m worth of mortgages each month which puts us in a strong position to obtain preferential products from lenders,” he says. “Kensington Mortgages, for example, offers free valuation and legals across its entire range, exclusive to us. But not every lender is willing to undercut its own product range.”

It’s important to listen to clients when designing exclusives. “In the sub-prime sector, two-year fixed rates with no early repayment charges have proved popular and our members have been crying out for us to break the psychological barrier of 6%,” he says. “We therefore delivered an exclusive 5.99% fixed rate funded by First National which allows two months’ arrears in the past 12 months.”

However, offering exclusives means a lot of extra work. “We work with lenders to come up with a product that offers something different,” Azadi says. “Then we have to produce the Key Facts Illustration and verify and check all the details are accurate. Under regulation, it must all be compliant.”

This means exclusives must have an edge over mainstream deals. “They should do more than knock 99 off the valuation fee,” he says. “They should offer something other products don’t. A buy-to-let exclusive might offer different rental calculations or cover Right to Buy properties for example, while a self-cert exclusive could have a tweak on referencing.”

Exclusives also work as a testing ground for products. “Many of the exclusives we negotiate end up getting incorporated into lenders’ standard ranges,” says Azadi. “This is a good way for lenders to develop products on a small scale. If the exclusive doesn’t sell, the lender won’t offer it again.”

The drawback, of course, is that you can spend a lot of time coming up with an exclusive only to find nobody wants it. “You negotiate a great deal, the lender sources a chunk of money, the distributor thinks they have got it right but the brokers don’t want to know,” adds Azadi. “The lender loses because they end up with a lot of money they can’t shift, and this can strain the relationship with a distributor. But at least the client isn’t hurt.”

Nicola Severn, marketing manager at Mortgage Trust, argues that exclusives help bind brokers and lenders more closely together.

“Lenders work with intermediaries at the product modelling stage to build in features and pricing to appeal to a specific sector,” she says. “Ultimately, intermediaries have the closest relationship with borrowers and the best insight into their requirements.”

Judith White, national sales manager at GE Home Lending, sees branded lending as a key part of distribution strategy.

“In a market where lender products are available from thousands of intermediaries an exclusive gives a broker the edge, particularly when designed for a specific market.”

They also offer lenders the opportunity to tailor products to the needs of the customer and more closely meet demands from borrowers and advisers.

“Exclusives help lenders develop their position in the marketplace, and offer a good suite of products,” she says.

Marc Turner, head of sales at Abacus Permanent, questions whether exclusives actually lead to increased sales. “Anybody can design exclusives but they don’t create incremental business, they simply cause a different product to be chosen from the lender’s core range,” he says. “A successful exclusive should go into a specialist area.”

Some brokers see exclusives as little more than a marketing exercise. Peter Gladdy, director of Mortgages Direct, says the vast majority are simply minor tweaks such as free arrangement fees to deals that are readily available. “The main advantage is that they give brokers and lenders something to hook on to when they are promoting the offer,” he says.

Simon Tyler, managing director of brokers Chase de Vere Mortgage Management, takes a more positive view. “At their best they benefit borrowers, brokers and lenders,” he says. “Borrowers get a leading rate and lenders can shift a large amount of money quickly.”

But you have to choose your exclusive carefully and many semi- exclusives are poor value. “The golden rule is never think that just because a product is exclusive, it is good,” says Tyler. “Some brokers get exclusive deals I wouldn’t recommend to 99% of my clients, though that can sometimes be due to a lender or broker going for a niche market.”

Brokers should always compare exclusives against the whole market, factor in the fees and other features such as flexibility and lock-ins.

“Only then can you make a decision,” says Tyler. “Don’t let anybody tell you that just because a deal isn’t available elsewhere, it’s a winner.”

Tyler says despite these provisos brokers can obtain fantastic exclusives that beat the rest of the market by a mile. This benefits the entire intermediary sector. “It attracts new customers to the broker market so they can see what fantastic service we offer. This often leads to lifetime relationships with clients and further referrals.”

Brokers targeting specialist markets can tailor exclusives to fit their clients’ profiles. If clients take out larger loans it allows a stretch of the minimum mortgage on a particular deal and persuades the lender they should generate enough volume.

Savills currently offers a Mortgage Express exclusive at 4.05% fixed for three years, with a minimum loan size of 200,000 and a 1.5% fee. It also offers an Abbey tracker at 0.09% over base with the maximum loan size stretched from 500,000 to 1m. The booking fee is 999.

Brian Murphy, lending manager at Mortgage Advice Bureau, says lenders often use exclusives to increase volumes in a particular sector or balance their loans portfolio. The challenge is to offer something attractive to the customer and still turn a profit.

“Lenders have to balance likely return against the costs of development, marketing and administration compared with mainstream products,” he says.

Even if clients end up taking a mainstream deal they appreciate being offered an exclusive.

“They like that brokers have access to products with limited distribution as it reinforces their decision to use them,” he says.

Before touting a deal as an exclusive brokers must make sure it isn’t being offered by a local rival.

“Clients won’t be happy if they have been sold the benefits of exclusivity only to find equally competitive products available via other intermediaries or direct,” Murphy says.

Ray Boulger, senior technical director at John Charcol, says brokers can unwittingly promote a deal as exclusive when it isn’t.

“We get emails from lenders offering us exclusives that, once we look into them, turn out not to be exclusive at all,” he says. “They are shared exclusives offered to a small number of companies including mortgage clubs and a couple of brokers. Brokers might not always realise this.”

An exclusive must add value. “Some do, some don’t. An exclusive is a good marketing tool to the consumer but it must be used honestly,” he says.

Boulger will only accept an exclusive if it offers something fresh. “It doesn’t always have to be a lower rate, it could be special features or LTV, but it has to be top of the tree in some areas to make it worthwhile.”

Some exclusives work for one broker but not another. “The attitude of the broker partly determines which exclusives sell well,” he says. “If they like to push fixed rates, there’s no point in a lender offering a tracker.”

This makes it more difficult for a network with a diverse spread of brokers to negotiate effective exclusives. “It’s easier for us because we aim at a particular segment of the market and have a clear idea of what exclusives we want,” Boulger says.

Regulation has cleared up some of the questionable marketing practices surrounding exclusives. “Prior to M-Day, you would see packagers offering exclusives that were actually worse than the lender’s mainstream product, for example the procuration fee was higher, or even the rate,” he adds. “Fortunately, that appears to have been stamped out by statutory regulation.”

Brokers shouldn’t be mesmerised by the term exclusive. “It doesn’t do your brand any good if the exclusive isn’t good value. And if it’s worse value, the Financial Services Authority will take a dim view of it,” he says.

There is one thing everyone agrees on. Exclusives, used properly, benefit customers most by racking up competition and giving them more choice, provided brokers aren’t using the label to hype sub-standard offerings. l

These deals should offer clients real benefits
Melanie Bien, associate director, Savills Private FinanceThe term exclusive is bandied around so much these days that clients have come to expect brokers to offer a range of best buy low mortgage rates from mainstream lenders. And if you can’t do this, chances are they will go to a broker who can.

Being able to offer exclusives adds value to our proposition and plays a big role in persuading clients to use our services not just in the first instance, but again and again.

From the broker’s point of view, having access to quality exclusives is crucial. A good relationship with lenders and the persuasive skills to negotiate access to exclusives are vital if brokers are to distinguish themselves from the competition. Brokers who have the size, expertise and market position to negotiate exclusive products with lenders with preferential rates and terms are onto a winner. At the very least it is important to be included in any semi-exclusives that lenders are offering, and market presence is vital when it comes to negotiating true exclusives.

Most exclusives are about offering the best rate of interest on the market but this isn’t the only way to add value for the client. Although many of our exclusives are focussed on the pricing of the mortgage with a lower rate than that available elsewhere in the marketplace – perfect for rate chasers – we also negotiate deals with our client base in mind. Such exclusives, based on stretched LTVs or enhanced criteria, can be attractive to borrowers who would otherwise struggle to get any sort of funding. Knowing your client base is vital and tailoring exclusives to fit your clients’ profile is vital if you are to stay a step ahead of the competition. Savills Private Finance often has exclusives aimed at clients taking out larger loans, where the mortgage amount on a particular deal is increased considerably.

If brokers understand their clients they can persuade the lender that it is in their interest to offer an exclusive on this basis as it should generate enough volume to make it worth their while.

It is not enough simply to offer an exclusive and hope it attracts plenty of extra business. The exclusive should provide real savings or benefits to the client and not just redistribute lender margin. It goes without saying that clients shouldn’t be persuaded to take out exclusives for the sake of it but only if they are suitable. In such a situation, the borrower can’t lose as they usually get a better rate or stretch than they would have done if they had approached the lender direct.

Exclusives will continue to play their partMartin Reynolds, head of sales, BM Solutions In today’s intense mortgage market, businesses continually seek to achieve competitive advantage. Often, achieving this is tackled through product offerings, service levels, technology and support. But a further method of differentiation is through the use of exclusive products. Many lenders work with key account partners to offer and distribute products designed in some way to be exclusive to that partnership.

Exclusive products are based on the principle that they will support the business models of both parties and benefits should therefore be mutual. While exclusives can be designed around added features such as refunded valuations and free legals, most are based around keener rates which can be achieved through economies of scale. In a nutshell, a lender can offer lower rates based on the fact that a partner can use this to sell higher volumes and so both parties benefit.

Looking at the advantages of exclusives from an introducer’s point of view, gains can be found through differentiation from competitors. At a network level this contributes to attracting appointed representatives and at the consumer level it offers brokers the opportunity to provide clients with products their local competition can’t match.

Lenders and introducers alike benefit when targeting a niche area of business and can together build products designed for that sector, offering a tailored approach.

Businesses must also accept that in using exclusives they have certain responsibilities. Exclusives can have many effects on the market which must be controlled and monitored. For instance, with large numbers of standard products available at any one time the addition of exclusives can simply add to the number of products on offer.

Exclusive products also have an effect on sourcing systems and KFIs. And it is important that no single player is allowed to take too much control – lenders should not rely on a single distribution channel and introducers should not rely on a single lender.

Overall, exclusives must work for all parties involved and if they do, they will continue to play an important part in the mortgage industry.

Many lenders are wary of exclusive dealsRob Clifford, chief executive, mortgageforceExclusive products are effective and popular with brokers but many lenders have a wary view of them. By nature, such deals exclude the rest of the broker market and this channel conflict makes some lenders nervous. They risk alienating many hundreds of intermediaries who have otherwise supported the lender.

In the mid-1990s one of our first exclusive products called Superstart, funded by The Mortgage Business, was a roaring success. We increased monthly lending by 30% and became one of TMB’s largest introducers overnight. But some bespoke products have generated only a handful of cases and barely justified the work involved. It is this latter scenario that lenders tell me is the more typical – they spend hours setting up exclusives for clubs and networks only to find that business levels considerably undershoot the promised volumes.

How the exclusive product is priced is they key to its market acceptability. After all, many exclusives are nothing more than a lender’s standard product with a minor tweak. Some brokers do seem to squeeze extra margin from the lender thereby offering the consumer a truly better deal, but other exclusives leave the consumer facing additional fees just for access to the exclusive deal.

Ronnie Forrest, proprietor of mortgageforce in Edinburgh, is suspicious of so-called exclusives and says the deals are often paid for by clients either through compulsory cross sales or in increased fees. And if the exclusives do reduce a lender’s margin, you have to assume that the lender recovers this margin from fees and rates on its non-exclusive products, thus increasing costs for other clients.

But not everyone sees it that way. James Taylor, product chief at West Bromwich, says: “Exclusive products are a key part of our proposition and definitely a good thing. We have a number of exclusive products available through franchises, networks and packagers that are designed to target different sectors of the market in different risk categories.

“We only offer exclusive products to our key intermediary partners and they are always true exclusives, not semi-exclusives. This approach continues to be successful for us. This year we will write hundreds of millions of new lending on exclusive products alone,” he says.

You can see that lenders benefit in so far as exclusive products are widely promoted by the broker firm or network ,often to hundreds of intermediaries the lender wouldn’t easily reach.

The question has to be whether or not the exclusive deal truly offers consumer advantage. James Taylor argues, – as do many other lenders – that his exclusive products are always more finely priced than the products available to the whole of market which is a clear win for the consumer as well as the broker.intermediaries the lender wouldn’t easily reach.

The question has to be whether or not the exclusive deal truly offers consumer advantage. James Taylor argues, – as do many other lenders – that his exclusive products are always more finely priced than the products available to the whole of market which is a clear win for the consumer as well as the broker.

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