Packagers purchased by lenders could be at risk

Packagers bought by lenders are putting their businesses at risk and could face a quick death with their existing lending panel, a leading industry figure has warned.

Last week, Mortgage Strategy reported rumours that Morgan Stanley is looking to buy Advantage Home Loans.

But one leading industry source is warning that although the vast majority of brokers still prefer to deal with lenders via packagers, by setting up their own lending arms with cross-ownership or becoming owned by lenders, packagers are putting themselves at risk.

The source tells MS: “Packagers face a choice. They’ve seen lenders respond to the demand that exists among brokers to deal direct. Packagers are putting their lenders in the position of opting for a quick death as far as the relationship is concerned, or a slow death. Lenders that opt for the former will effectively be pulling funding away from the packagers.”

The source says that once a packager is purchased by a lender, or forms its own lender, it is inevitable that business will be taken away from the previous panel and put into the new venture.

The source adds: “There is some advantage to panel lenders recognising this immediately, pulling funding away from the packagers and advising brokers they can still deal with them but via other packagers.”

Slow death would involve a declining amount of business over a period of years, the source says, but if the quick option was taken the packagers would be restricting the amount of funding they have access to.

The source concludes: “If this happens during a price war they will perversely be threatening their own existence as, if they can’t offer a full range of competitive products to brokers, the they can’t continue as a packager.”