If you mention the phrase “building society” to a broker these days, you are likely to get a positive response.
Gone are the days where all – or at least nearly all – borrowers are catered for and today brokers often bemoan the tick-box mentality of the high-street banks.
But mutuals have grasped the opportunity and have been one of the main sources of innovation in the market since the financial crisis, with individual underwriting often their USP.
Of course, building societies have long shouted about “common sense underwriting” as a way to differentiate themselves from banks. But this is arguably more important now than ever due to the sometimes vanilla offerings and rigid underwriting of the high-street giants.
The landscape used to be very different, however, with building societies dominating mortgage lending until deregulation in the 1980s. It was just before those sweeping changes that Skipton Building Society head of intermediary sales Paul Darwin entered the world of mutuals – where he has stayed since.
The mutual man
Despite spending his entire career in the mutual sector, Darwin did not always harbour ambitions of entering finance.
After graduating with an economics and politics degree from the University of Leeds, Darwin saw an opportunity to join Nationwide and tried his luck.
“Like most people it wasn’t a childhood ambition, it was an opportunity that came about as and when I graduated,” he explains. “I was back in my hometown of Boston, in Lincolnshire, and I saw an advert in the local paper at the time, applied for it and got it.”
He joined the building society as a graduate trainee, taking up various management roles.
The mortgage landscape was very different back then, with lenders operating mortgage quotas, meaning there was a finite amount of money to lend each month and if the funds had run out, the borrower joined a waiting list.
“I joined in the days of mortgage quotas,” explains Darwin. “I actually remember when I did my first few mortgage interviews I couldn’t actually help the customers, either because they didn’t have enough deposit or they weren’t an existing saver. And in those days, there were only two types of mortgages – a repayment or an endowment.”
The first eight years of his career saw him move around the country a lot.
“It almost got to the extent that we would joke that the cooker was getting dirty so we needed to move,” he says.
“I was with Nationwide from 1980 until 1988. My first move was as an assistant branch manager to Westbourne in Bournemouth. It happened at a time when my wife was pregnant with our first child. I had several moves with Nationwide as it used to be the in vogue thing to move the people rather than just always recruiting a person in that locality.”
But in 1988 Darwin left Nationwide to join Norwich & Peterborough Building Society as a district manager before taking up a role at Skipton as an area manager two years later. And he has stayed at the society since.
“When I got to Skipton it was a time when my two daughters were coming up to secondary education and I made the pledge that we would stop moving around and I would put their education before my career. I have no regrets and here I am still,” Darwin says.
From area manager, Darwin took on a number of regional manager roles before becoming a national account manager and then head of intermediary sales, a position he has held for the past 10 years.
Darwin, a director of the Intermediary Mortgage Lenders Association since April 2014, has spent the past 34 years working in building societies but when was his first real taste of the mortgage sector?
“I think that came about when I was a branch manager with Nationwide in Nottingham in 1988. It was post-merger of Nationwide and Anglia and there were three offices in Nottingham – I was in an ex-Anglia office”, he says.
“We had centralised the mortgage processing. I think it was August 1988 and that month we actually processed 140-odd offers when MIRAS (Mortgage Interest Relief at Source) came to an end and that’s when all offers were hand typed. That was my first taste of the intermediary market and understanding the capability and breadth of that market.”
Darwin has had extensive contact with intermediaries since and his current lender gets over 90 per cent of its business from brokers – and it has no plans to change that. “That is a model we are comfortable with,” he says. “It is also a recognition of the way people are looking to get mortgage advice. And while the internet has changed the world, people still want the comfort and reassurance of going to see a broker. The mortgage process is a complex one and people want the comfort of doing the right thing.”
It has been a time of change at Skipton of late. In July, the mutual sold third-party servicing arm HML to Australian listed firm Computershare for £47.5m. But the society has marched on, posting impressive profits in the first half of the year – £90m, a huge increase on the £28.3m reported in the same period a year earlier.
It posted strong mortgage figures, too. In the first half of the year, it lent £1.5bn, up 36 per cent on the £1.1bn lent a year earlier. Moreover, the society lent nearly two-thirds of the £2.4bn it lent in 2013 in the first six months of the year alone.
So how has the society managed to achieve such growth?
“I think we are very in tune with the market and the understanding that there have been a pent-up demand since the credit crunch and we also take a pride in our mutual ethos and providing people with the opportunity to be a homeowner,” he explains. “I think it is that closeness to the market that has allowed us to achieve that. We have a good team of BDMs, a good team of telephone support staff and we give our brokers access to our underwriters in our service centre. It is that well-rounded ability to keep in touch and respond to product needs and service that brokers have enjoyed. The fact that brokers keep on supporting us means we are getting it right most of the time.”
The building society has invested heavily in its broker proposition over the past year, demonstrating its commitment to introduced business. In fact, just this week it raised procuration fees for buy-to-let cases from 0.35 per cent to 0.5 per cent.
“The one thing I can say is we have used our increase in profits to invest in the people,” he explains.
In April, Skipton recruited 43 staff to its call centre, with 25 dealing with broker enquiries. It has also recently hired a new intermediary regional manager and increased its BDM team to 13.
The society has a system in place that even if brokers cannot contact their BDM, they can speak to a member of the telephone support team which can answer enquiries. “It is another reason why brokers continue to support us – they like to get hold of people quickly and have their calls dealt with instantaneously,” he says. “We recognised that and did something about it by putting something in place last year.”
And Darwin says the society plans to continue investing in its mortgage proposition.
“We are always looking to see how we can get better – our processes and our ability to deliver a good service,” he says. “One of the most recent developments we did was to put in a new telephony system and we are going to continue to enhance our e-mortgage system, which allows brokers to submit and track applications.
“But we should not lose sight of the fact we have just gone through MMR, the greatest regulatory change in 10 years, and while we have been doing affordability for a number of years we wanted to make sure our latest calculator was appropriate and fit for purpose, so we put in a new affordability calculator.”
While Skipton has invested heavily to maintain its service levels, the Mortgage Market Review caught many lenders short.
But Darwin says Skipton suffered only minor problems when it started operating under the new regime in January, a full three months before the rules came into effect.
“MMR really worked well for us,” Darwin says. “We launched at the end of January and our affordability calculator did what it said on the tin. There have been a few niggles and glitches within the system but as soon as we were aware of them we dealt with them.
“We were open for business, we had a good service proposition and because we had been doing affordability for a couple of years before hand we didn’t see any big changes in documentation. So while others pulled back a bit from the market we were able to still satisfy those customer and broker requirements about placing business.”
Darwin also believes the MMR has worked in favour of brokers, especially as the new rules ban most non-advised sales. The only sales that can continue on an execution-only basis in the new environment are where the customer does not want to borrow more money and they are just switching rates or taking a retention deal where there is no personal interaction with the lender.
He also says that because of the new rules, criteria has become more varied and therefore the value of brokers has skyrocketed. Moreover, lenders have struggled with the non-advised sales ban, with borrowers having to wait weeks for an appointment, which then takes up to three hours. “I do think that from a broker perspective, there are actually a few reasons why it went in brokers favour,” he says. “One is advice, the second is that lenders interpreted things differently so it created complexity and brokers were familiar with lenders’ criteria, so it goes in their favour. There were delays in customers trying to get appointment and as a consequence brokers were able to take up the slack. With the new rules coming in, some borrowers could not afford to wait to get an appointment.”
The MMR is the biggest shake-up in mortgage regulation since M-Day, when the industry became regulated, a decade ago. But the Bank of England’s first foray into market intervention could possibly prove just as significant in the years to come.
The Bank is insisting that, from October, loans over 4.5 times income must not make up more than 15 per cent of new lending. It is also insisting that lenders use a tougher stress-testing regime, forcing lenders to ensure borrowers could afford their loan if base rate were at least three percentage points higher at any time over the first five years of the loan.
Brokers have complained that the income multiple-based rules from the Bank and the MMR, which is based on affordability, are contradictory and will leave consumers feeling confused.
However, Darwin disagrees that the rules are contradictory but he is in favour of the Bank’s attempt to put a lid on riskier lending.
“I don’t quite read it like that,” he says. “From our interpretation, I view affordability checks from a micro or personal level to ensure the borrower can afford the loan and the LTI cap, for me, is a prudent buffer and puts a line in the sand.
“It does not say you can’t do any lending above 4.5 times income, it says as a prudent and responsible lender, it makes sense that you fall comfortably within the guidelines. I do agree with it. The FPC’s job is to protect financial stability.”
Some lenders – Lloyds, Royal Bank of Scotland, Santander, Accord and Aldermore – have introduced their own LTI caps in reaction to the new rules.
But Darwin is cautious when asked if Skipton will follow suit and says much less than 15 per cent of its lending is above 4.5 times income. “We’re comfortably within the 15 per cent and we will do everything that we can to work within those rules and guidelines but still enable homeownership with that appropriate affordability check and risk control,” he says. “We don’t have a cap in place at the moment but we are keeping a watching brief on the marketplace.”
Now the MMR is almost a thing of the past and preparations for the impending LTI cap are well underway, it allows time to look at the future of the mortgage market.
But what would Darwin like to see happen over the next 12 to 18 months? While he does not propose a huge upheaval, he says communication between lenders and brokers is something the industry could work on.
“The market seems to be going from strength to strength, which seems to me that the fundamentals are there,” he says. “I do think that we could work closer together as brokers and lenders.
“Brokers can ensure their cases are packaged as the lender wants with all the documentation – then the lender can give the best service to the customer. We continually need to have a dialogue as the lender and the broker both want the end customer to have the right experience.”
And what about building societies? What does the future hold for these institutions?
The future is bright for the sector, if you ask Darwin. And he is confident Skipton will go from strength to strength.
“Mutuals have continued to punch well above their weight in the high LTV arena,” he says. “As far as we are concerned we are in a strong and healthy position – we have a strong capital position; our arrears are lower than the CML average.”
But he does have one final word of caution. “The economy is recovering but there is still uncertainty,” he warns. “And indeed we do not yet know the full impact of the MMR or indeed the recent LTI and stress rates will have on the overall market. I hope customer confidence in the market and demand continues and we are all able to build our businesses for the good of the market.”
Whatever the future holds for the market, one thing is certain: Skipton will keep its close links with the broker community.
PAUL DARWIN: CV
Born: Oct 1956 in Boston, Lincolnshire
Education: Boston Grammar School, BA (Hons) Economics & Politics, University Leeds. FCIB, CeMap
- 1980 – joined Nationwide as a Graduate Trainee. Various manager positions
- 1988 – Joined Norwich & Peterborough as a district manager
- 1990 – Joined Skipton as an area manager, a number of regional manager roles, national account manager, head of intermediary sales for last 10 years
- Apr 2014 – Director Imla
Hobbies: Keeping chickens, growing own produce, DIY projects, fly fishing and cars
Favourite film: Saving Private Ryan
Favourite book: 61 Hours by Lee Child (part of the Jack Reacher novels)
Favourite band: U2 & Coldplay (Andrea Bocelli if I want to really relax)
Mortgage: Lifetime tracker with ING (now Barclays)