Money Partners is no stranger to moving with the times, since its Kensington owned days it has adapted its proposition and fallen into the lap of US investment bank Goldman Sachs, making it vulnerable to the fallout in the US market.
Mortgagedistributor.co.uk speaks to Martin Gilsenan, sales director, Money Partners about its future in the specialist market.
Do you feel confident about your future in the market?
At a time when some of the world’s largest, and hitherto safest, financial institutions are under attack, this is a very difficult question to answer with any degree of certainty. As a specialist lender who relies on fully-functioning wholesale money and securitisation markets, we have clearly been challenged by the impact of the liquidity crisis.
“It has caused us to scale back in size, lending and distribution. But we’re confident that we’ve got the balance right and are now well-positioned to take full advantage of a return to more normal conditions.”
How will you continue funding your products?
Through our parent business, Goldman Sachs.
You were never seen as a packager lender when you were owned by Kensington, why was this?
The joint venture arrangement with Kensington Group – as it was then known – encouraged a multi-brand approach to market distribution. The core brand, Kensington Mortgages, focused on packagers and smaller introducers, while Money Partners concentrated on the established retail broker sector. It was always our ambition to break into the packager market, but the necessarily non-competitive nature of our relationship with Kensington made it a non-starter at the time.
Are you going to focus Money Partners more on packagers now?
Absolutely. Without any further restrictions on who we distribute through we have identified packagers as a core channel. That’s why they make up the majority of partners on our intermediary panel.
You have recently made increases to your packager panel, will there be more?
This largely depends on factors beyond our immediate control, such as the availability of funding. We didn’t move to a limited panel approach through choice. We did so because of market conditions, and because we were a smaller business in response to those conditions. It didn’t make any sense to maintain a panel of 800-plus intermediaries – all with direct access to our products – when we didn’t have the funding to satisfy demand. With fewer resources at our disposal, service too would have suffered to an unacceptable extent.
We therefore took the difficult decision to limit direct product access to a specific number of partners, each of whom would benefit from a guaranteed monthly lending tranche for their exclusive use. Our original panel, announced earlier this year, comprised twenty partners. This has since increased to thirty. Other brokers and introducers wishing to access our products can continue to do so via one of these partners.
Our approach has proved to be both successful and popular. Packagers and brokers understand why we have done it, and we’re maintaining constructive dialogue with many of them regarding a future place on the panel. While I’m unable to put a specific number on it, it is a fact that we want to expand our panel. But we will only do so as and when conditions allow.
How do you choose which packagers to allow on the panel?
Through an assessment of past experience – many of our relationships pre-date the launch of Money Partners four years ago – and future potential. We invest time with each of our partners to explain our proposition and how it can help bring back confidence to specialist lending. In return, we ask them to promote Money Partners to the best of their ability while delivering business in line with their funding tranche and our quality criteria. Volume alone is not a key determinant, nor do I expect or want it to become so again in the future.
What do you think the future holds for packagers?
As a community, packagers have proved remarkably adept at adjusting to changing conditions. Written-off as ‘yesterday’s solution’ more times than I can remember, the best are still with us and providing an invaluable service. But I recognise that the current set of challenges is bigger and likely to be more longer-lasting and destructive than anything we’ve seen before.
Crucially for packagers, the drying-up of mortgage availability has hit non-conforming lending the hardest. In order to survive therefore, packagers need to be confident about their lender relationships but must also be prepared to take a long, hard look at themselves. If necessary, they must be ready to make the tough decisions that could mean the difference between survival and extinction. Some already have, but for others it’s too late, I’m afraid.
What do you think the future holds for the mortgage market in general?
I suspect I could become a very rich man if I knew the answer. But with events moving at an utterly bewildering pace – Lehmans gone, Merrill Lynch sold, HBOS bought by LloydsTSB – there’s a good chance my musings may be out-of-date even before they see the light of day. But we can be sure that the mortgage market will look, feel and behave very differently to that which operated before August 2007. And I think it will continue to do so for a couple of years at least – the extent to which I’m prepared to stick my neck out.
Considering the various parts of the market in turn, I believe prime borrowers with a minimum 25% equity stake in their homes will continue to enjoy wide access to decent deals. These customers comprise the bulk of the market, so I see core annual gross lending holding up quite well, probably around the £250 billion to £280 billion mark. But the bad news for intermediaries is that their mortgage needs will be easily catered for by lenders’ direct-to-customer capabilities.
The prospects for the heavy-adverse customer and those with very complex needs are nowhere near as rosy. They will continue to be disenfranchised from future borrowing as lenders continue their ‘flight to quality’. Some hope may be offered by the re-emergence of small-scale specialists backed by private equity, but it will be too small-scale to make a significant difference.
That leaves borrowers with a near-prime profile, and those looking for self-cert and buy-to-let deals. They will be catered for – both by High Street lenders and the surviving specialists – but it will be on a reduced scale, perhaps as much as 70% less than pre-credit crunch levels of lending. They will also pay more as risk-based pricing comes to the fore.
Intermediaries will certainly survive at all levels and in all forms. But they will be fewer in number and probably more diverse in their activities. I also anticipate a continuing trend away from Directly Authorised brokers to Authorised Representatives as tighter regulation bites. But it won’t prevent further consolidation among the networks. I also expect to see greater reliance on broker fees for advice as the pressure on proc fees continues.
As for the housing market, I don’t envisage a cataclysmic collapse. But prices will fall – heavily in some regions and metropolitan ‘hotspots’ – before inevitably rising again. But keep on eye on unemployment. If it rises significantly then the expected cuts in bank base rate won’t matter a fig, and the predicted number of 45,000 repossessions this year will look like a drop in the ocean.
But am I downbeat? Surprisingly not. I have great faith that we will navigate our way through the present crisis. There will be casualties and personal tragedies along the way, but just as a forest emerges refreshed and renewed after a devastating fire, so we will emerge stronger and wiser.