Richard Coulson, chief executiv, Home of Choice
We began trading at Home of Choice in July last year. We were the first post-Mortgage Day mortgage network and as I predicted then we have not been joined by any other new entrants to the market. Instead, we continue to see consolidation as established networks struggle to evolve their business models and provide their brokers with ever more sophisticated ways to advise clients. We have created a buzz among brokers who are tired of the stale, old-fashioned networks. We started from scratch but with a desire to provide brokers with everything they wanted. We also wanted to build a business that was different from other corporates – no bullshit, absolute integrity and most importantly, no ‘us and them’ mentality. It must be working as we already have 584 individual advisers with another 320 in the pipeline or awaiting transfer. Our recruitment success is based on our solid and open proposition. We have had no need to offer golden handshakes – or handcuffs – as is the practice of some competitors. Whichever way the incentive is dressed up, taking money in advance of doing business adds up to a soft loan but on commercial terms. A firm tempted in this way is under pressure to produce certain levels of business otherwise the incentive becomes a debt, so whichever way you look at it Shylock will claim his pound of flesh. And if a firm wants to leave and join another network, again the loan must be repaid in full. For investment and pension advisers there may be a good reason to offer financing as the loss of renewal business can have a negative impact in the months leading up to being appointment by a new network. This is one of the reasons we won’t move into investments. We want people to join us based on our proposition, not incentives. We are also finding that many investment and pensions businesses that are already tied to other networks or in single-ties are taking advantage of our parallel business model. Parallel businesses allow the honouring of any contract and tie-ins, while opening the door to other business entities being created alongside. Brokers taking advantage of this operating model can increase their margins and profits. They can operate a focussed mortgage business while running a financial advisory firm alongside, both catering for the needs of clients. With the same holding company, this concept allows a firm with at least two advisers to go back to the drawing board of their business models and run both businesses profitably without fear of contract limitation or lack of product differentiation. Helping our brokers’ businesses grow is fundamental to the growth of our company. It obviously poses a threat to our competitors as I’ve seen them tying brokers to onerous notice periods rather than let them join us. If brokers want to leave and join another network, what purpose does it serve to tie them in for up to six months? This practice is immoral and at our first birthday party I went so far as to say that these brokers are political prisoners. If our competitors have nothing to fear, why do they continue to tie brokers into anti-competitive contracts? I don’t need to name names but it would be cheering if this time next year it was standard throughout the industry for networks to offer a transparent one-month notice period such as we have. We built the HoC proposition using trusted top brokers to advise us. Having a blank sheet of paper – no legacy systems – was vital. And getting the infrastructure right was obviously important. But getting the IT system built to brokers’ specifications was crucial. They advised us along- side our compliance team and we now have a compliance system that runs 24/7. We also built the ignition fee-payment system. We are a business-to-business organisation with an average 3.1 advisers per firm. Appointed representative firms told us they wanted a software system that allowed them to know what advisers were doing on a weekly basis so they could award commission and fees. Our fee-payment system is personalised to each broker and business, and the feedback we get about it is phenomenal. The basic tenets of the broker/network/lender triumvirate are good proc fees, excellent service, high quality IT, market intelligence and swift payment. While these four factors are equally important, market intelligence is a condition of lenders being part of the HoC proposition. With a reputation for the prompt settlement of proc fees on a weekly basis, it would help our cash flow if lenders followed suit instead of paying fortnightly and I am glad to say that lenders are sympathetic to our position. I am sure this will soon become a reality. This is a good time for brokers to contact clients on variable dealsIn a move that was not widely anticipated by the financial markets, the Bank of England’s Monetary Policy Committee raised the base rate to 4.75% recently. An increase was expected but not for another month or so. The decision came after last month’s meeting of the MPC held rates with a unanimous decision in favour to continue 11 months of no-change. This pre-emptive decision comes at a time of rising inflation caused by increases in household energy bills, Council Tax and record oil prices. The rate of inflation is 2.5% – well outside the government target of 2%. So what does this mean for consumers with mortgages? I believe this is an adjustment rather than the beginning of a series of regular rises. But any increase is bound to slow the housing market and recently we have seen record month after record month when it comes to the numbers and value of mortgage loans. The base rate rise may put first-time buyers off for a while but on the other hand a slowing of the rate of increase in house prices will make them relatively affordable. This will not help first-time buyers and struggling families hoping to move up the property ladder in the short run but the market will always be driven by demand and supply. New homes will continue to sell as builders adjust their position with improved incentives to potential buyers. And home owners and movers can take advantage of the wide range of short-term fixed rate mortgages and base rate trackers available. Some 71% of mortgages are secured on fixed rates and this allows borrowers to budget with confidence and be protected from base rate rises. But this is a good time for brokers to contact clients who are due for a remortgage or those who are on variable rates and who might prefer to look at short-term fixed rates.