The first indication in the shift of power between lenders and brokers became visible in the high-handed attitude of Northern Rock creating its secret panel of brokers to offload much of its mortgage book.
It not only alienated the brokers who had been part of its distribution model before it was nationalised, the lender then did a U-turn, thereby disenfranchising its appointed panel.
More recently, other lenders have come out with their version of preferred panels that reward quantity over quality, thereby excluding prime cases from respected brokers working in well run and regulated clubs and networks.It is not surprising that lenders are using these challenging market conditions to seize the balance of power.
During the boom years, brokers were the controlling force and ruthlessly compared the minutae of one two-year fix with the next to ensure clients got the best deal.
It is either payback time – although I am not sure lenders are that petty – or lenders are seeking to secure their own future without worrying about which networks and brokers will still be in the market come 2010.But by rewarding volume over quality, what message is this small band of lenders sending to the market?
Replacing the lending sales culture that was at the heart of a booming market with a distribution model that slams the door in the face of safe and compliant prime business, is not the way to reignite the mortgage market, which is, of course, the main issue.
Recent Council of Mortgage Lenders’ gross mortgage lending figures showed just 516,000 house purchase loans were transacted in 2008 – the lowest level of activity since 1974.
The tightening of credit criteria, the equivalent of a 10-year erosion on house prices and the weakening economy have combined to switch off consumers at every level. Not even during the last recession did property transactions dip so low.
It is interesting to compare how lenders and product providers that face the same tough economic challenges are treating the distribution chain.
Instead of the scattergun approach of lenders, the providers’ model is more targeted sniper fire.
From Axa to Zurich, product providers are investing in distribution – either as the owner in the case of Axa’s acquisition of Thinc or as sleeping partners, with investments across a number of distributors, as in the case of Friends Provident.
Even before joining a product panel, providers are carrying out stringent checks to ensure advisers are vetted and the business they write is checked.
Our experience has been a partnership approach, whereby we provide the right layers of security and safety, and providers give brokers the training and support to ensure their products are being advised in the right way.
Surely, that is a model worth emulating.