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Industry’s big issues need a five-year plan

Perhaps it’s time to consider a longer-term plan to cope with the fundamental changes that will affect mortgage and financial services, including bank reform, tighter regulation and of course the economy


Have you tried the online music streaming service Spotify? I am indebted to a senior manager at Nationwide Building Society for introducing me to it about two years ago. And once found, I’ve never looked back.

Through Spotify I have rediscovered the soundtrack of my teenage years – the records other people had, rather than my own, or which were playing in coffee bars and pubs and at parties at the time, and which I’d forgotten until I rediscovered them while working at my home computer.

In particular, using Spotify I have rediscovered that great album by Bowie – Ziggy Stardust, and the gem of a track that is Five Years.

And taking a trip down memory lane gets you thinking. Not just about the year ahead, or even the two years left before the Retail Distribution Review is in place, but what might happen to our business and our markets over the next five years.

The old Soviet Union used to run on five-year plans, and modern day India still does. Although many businesses now use shorter planning horizons due to the volatility and unpredictability of their markets, five years is still not a bad period in which to consider some of the fundamental changes that affect our businesses.

Adaptability and flexibility in the face of the continued depressed market will be essential.

If you have any doubt, just think about what has changed in your own business since 2006.

I have picked a number of big issues that will affect mortgage and financial services businesses over the next five years and have set out some thoughts about what these impacts might be.

The continued sluggish economy: It will be some considerable time before we have a housing and mortgage market operating at a level which permits people to move home when they want, and when refinancing or remortgaging as part of normal sensible financial planning, is possible again.

Forecasts by Hometrack indicate it will be not until 2015 that gross mortgage lending reaches more than £200bn again – viewed as the level needed to get transactions back to over a million per annum.

There is a danger the Bank of England will overreact to the current short-term inflationary pressures in the market and raise rates too soon – stifling the recovery.

In this market, businesses will have to target market share to grow – market growth itself will not be there to help and we will see the continued survival of the most fit.

That does not necessarily mean the biggest will survive. As Charles Darwin said: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”

Adaptability and flexibility in the face of the continued depressed market will be essential.

Bank reform: The Independent Banking Commission, under John Vickers, will report later this year, and Vickers has made some speeches indicating the way the commission is thinking.

The main aim is to propose new structures for our banks that would avoid the costs of any future banking failure being borne by the public purse, and instead fall wholly to shareholders and creditors.

It is considering the separation of the retail and investment arms of our biggest banks, or much higher capital requirements for these institutions to ensure they are better able to absorb losses.

In either case our large banks and the mortgage operations they run are in for a prolonged period of change – not a good backdrop for encouraging them to concentrate on rebuilding the UK mortgage market.

Higher capital requirements, as we have seen already, tend to reduce higher loan to value lending. So we cannot look to a resurgence of market share competition from our major lenders over the next few years, and perhaps, in this environment, the small new entrants we have seen over the past year will be of more importance.

Regulation: I can imagine that working at the Financial Services Authority at present must feel like being Indiana Jones at the opening of Raiders of the Lost Ark running in front of a huge rolling boulder.

Does it get to implement its plans before it performs its Dr Who style regeneration into the Consumer Protection and Markets Authority and if it does, will the other boulder – EU credit regulation – catch it up instead?

As always, the consequences of structural change for the regulator will affect the firms it regulates, either through a new broom approach from a new regulator, or from the period of inactivity and uncertainty that precedes that change.

Plan for change and uncertainty would be my advice. And in the meantime, remind the supervisors who visit that they should work to the current rulebook rather than the one they believe may be coming over the horizon.

Multigenerational workforce: We are entering a new era where the typical workplace is likely to contain staff with a wider spread of ages than most of us have experienced. This is due to both the changes to retirement rules due in October 2011 bringing in no enforced retirement age, and also the economics of retirement, meaning that more people will have to work longer to be able to maintain their preferred standard of living when they stop working full time.

To that you can probably add thousands of youngsters unable to afford to go to university.

Managing a workforce like this will be a challenge for many firms.

The “old buffers” won’t go quietly (I know, I will be one) and progression and advancement in a firm may be slower than it seemed likely a few years ago.
On the plus side, some extra wisdom may be around in the office rather than on the golf course, which may help firms through these difficult times and which the older staff may well have seen before.


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