As this is the last issue of Mortgage Strategy in 2005, I thought it appropriate to look at what I think the lender community will do to support the mortgage intermediary in 2006.This year has been a tough one for intermediaries. The industry has had to get to grips with new regulation and the early part of the year saw a major downturn in business. However, the market now seems to be more positive, with a small sign that house prices may have stabilised and business volumes have been maintained in the last quarter. In other words, the soft landing appears to have happened. Next year I see lenders making a decision to invest more money in the intermediary channel. They have the capital to make key technological developments that can develop the framework the industry needs. Lenders hold most of the capital invested in the industry. The challenge is to maintain or increase their return on this money to keep shareholders happy. Making any justification for further investment in the intermediary channel is difficult when returns aren’t easy to predict. On the other hand, the intermediary sector has limited capital resources. Its business model is not geared to generate the embedded value that could be used to provide further investment. Intermediaries are paid per completion and do not receive annuity income, which would build value. Investment here is desperately needed to provide the IT structure required to cope with regulation and the market’s demands. The market itself is likely to shrink in the next few years, as consumers adjust to life with 1.1 trillion of debt, stable inflation and interest rates. Lenders injecting capital into the intermediary channel could come in a variety of ways. First, one could see a new deal for intermediaries, where lenders focus on the loyalty of intermediaries and their clients. This can be achieved by paying a commission over the life of the loan to the introducing intermediary. Intermediaries sharing in lending’s risks and rewards is one way in which the necessary investment can be channelled in while still delivering a return. The next prediction is for lenders to invest in a forum to discuss IT priorities with their intermediary partners. Working with other lenders to provide the data standards that would allow systems to exchange information easily would also be positive. Origo is proposing this forum, but it will take a small investment from lenders to start this process. The final way lenders can share capital with the intermediary channel is to invest directly in distribution. This could be done by investing further in their common trading platforms, or by buying into intermediaries directly. The intermediary market, particularly the specialist sector, will get crowded next year, with at least four new lenders scheduled to launch. The US investment banks already involved in the sector want to see further expansion, and most mainstream lenders whose margins have been squeezed will also have their eyes on specialist lending. We have already seen Morgan Stanley buy Advantage – 2006 may be the year when we see much more vertical consolidation by lenders into the intermediary channel.
- Top trends
In case you hadn’t noticed, this time of year is considered (advanced warning to those with a low political correctness threshold) the ‘season of goodwill to all persons’. You could be forgiven for feeling someway short of your normal yuletide spirits. Season of goodwill? Not a chance if you are a mortgage intermediary.
From Guy Garrard How refreshing to read Nigel Payne’s response to Simon Mouncher’s letter in Mortgage Strategy (November 14). The Mortgage Business is “firmly behind packagers” and sees them as being “closely linked” to its growth. What a shame then that as a major UK packager all of five minutes’ drive from TMB’s Chester offices, […]
The Coventry is introducing an offset mortgage to its range from Thursday December 22. The product is fixed at 4.99% until December 31 2007m followed by a plus 0.75% above Bank of England Base Rate for the term. Features include free valuation, free legal fees for remortgages, daily interest, 199 booking fee, 350 arrangement fee, […]
Countrywide, which closed 54 of its estate agencies during 2005, says the housing market has crashed to its lowest sales level for 30 years. Managing director Harry Hill blames last year’s four interest-rate hikes, and predicts 2005 will go down as one of the worst on record for sales.
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