About 20 years ago, the secured loans market was dominated by a small number of super-brokers and I was fortunate enough to be involved with one of the biggest.
Almost 80% of lending volume was shared that relied on advertising in the national press. Many of these super-brokers didn’t make it through the recession of the 1990s but of the few that did, some spawned the dominant brands we are familiar with today.
More recently we have seen a plethora of secured loans firms being born out of other brokerages or lenders, and the market has moved away from the printed media to rely mainly on internet advertising. The distribution and advertising channels available today are virtually unrecognisable from those of the late 1980s and early 1990s.
A wave of change is about to hit the secured loan market, brought about by a variety of circumstances. First, mortgage brokers are generally looking for new channels of income. Second, the technology aimed at brokers has been refined and is now far better than that available to secured loan specialists. Third, traditional consumer-facing brokers are moving out of the sector because the economics don’t stack up, leaving a gap for mortgage brokers to step into.
Finally, regulation has put pressure on mortgage brokers to properly assess clients’ options. To simply hand clients over to loan brokers will no longer suffice. While there is less customer appetite for secured loans and less appetite from lenders to lend, mortgage brokers are well positioned to pick up the secured loan business being abandoned by specialists exiting the market.
Furthermore, because mortgage brokers can offer mortgages, secured loans and numerous ancillary products their cost of acquisition per product is less than for brokers who rely on loan transactions alone.
So the numbers stack up. But setting economics aside, you only need to look at the service propositions that local IFAs or mortgage brokers can offer compared with those offered by national loan brokers to see the gradual shift in distribution could quickly become a landslide.
Many large brokerages rely on teams of telesales clerks surrounding one or two experienced underwriters, and tend to do business mostly through the postal system.
Their sales and underwriting processes are often clunky, resulting in multiple calls to prospective borrowers, or offers being sent in the post for which customers have no chance of qualifying.
This approach is known as switch selling and often involves telling customers what they want to hear at the outset, then sorting out the resulting mess once completed application forms and customers’ personal documents have been returned.
Compare that with the working practices of local mortgage brokers or IFAs who have taken the time to get to grips with the sourcing and selling of secured loans, and partnered with quality packagers to undertake the administrative function.
First, they are local and consumers like to deal with someone based just around the corner. For one thing, consumers can see their brokers in their own home to discuss their requirements. Second, these brokers are Financial Services Authority-authorised professionals who can talk knowledgeably about a range of products including mortgages, loans and protection deals.
Not only can they offer whole-of-market products but the technology and loan refinement tools they have available ensure they offer best advice. While sat on a client’s sofa, they can instantly do a credit score, then print pre-completed application forms and lender agreements to get the process underway.
So in one visit a customer’s needs are met, the application is signed, supporting information is obtained and the borrower is provided with copies of the proposed loan agreement.
Secured loan super-brokers cannot match this level of service. If I was a borrower, given the choice of being involved in the sourcing process in my own home with a professional adviser compared with dealing with a faceless person on the end of a phone and waiting days to receive my application, I know which route I’d prefer.
I am fortunate in that I can observe the activities of our introducing brokers as they source applications online and submit them.
It is rewarding to see brokers who were novices yesterday competently sourcing and selling secured loans today – and earning £2,500 for simple introductions.
Of course, our insomniac brokers who source loans at 3am also raise a smile.
Mortgage clubs and networks recognise the opportunity that secured loans are creating for them and their members. Lenders too see mortgage brokers as the big new channel for secured loans and, despite their liquidity problems, are keen to help develop skills and understanding in the sector in readiness for the market recovery.
It remains to be seen whether brokers will recognise this opportunity and act. If they do – and quickly – we will see a fundamental change in the distribution of secured loans. But any delay could see circumstances change and the small number of large brokers retain their grip on the market.
For mortgage brokers and IFAs stepping into the loans sector, the ground has never been so fertile or so well prepared.
One saying maintains that you can lead a horse to water but you can’t make it drink. But the one I prefer is – strike while the iron’s hot.