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Brokers face Rate Matcher headache

I was dismayed by the negative coverage of HSBC’s decision to extend its Rate Matcher offer to new borrowers. Some commentators have dismissed it as irrelevant and others have focussed on its low LTV and high arrangement fees.

The attitude of some pundits is that despite being a global financial giant, HSBC is a small lender on the UK scene with an out-of-date distribution model that ignores brokers.

But this isn’t borne out by the facts. The Council of Mortgage Lenders’ Yearbook 2007/08 shows HSBC as having a 3.59% share of the mortgage market with gross lending of over £12bn. It’s around the size of Alliance & Leicester, a major broker brand. Lenders that do not consider HSBC’s move to be dangerous need to think again.

Mortgage Strategy readers will probably be aware of the ongoing debate regarding automated versus part manual underwriting.

I know from my own research that HSBC will want to interview borrowers who apply for the Rate Matcher product. It won’t merely underwrite its business on a part manual basis – it will do so face-to-face every time. This will cost the lender a great deal of money but think what it will do for its asset quality. And if HSBC wanted to trade Rate Matcher assets, maybe it could receive a premium to cover the initial costs.

I’m sure such a trade-off is not the only thing that’s ticking in the lender’s corporate mindset. No doubt it has its sights set on the lending equivalent of the Holy Grail – products sold per transaction. This is a much discussed measure of success in European mortgage circles but not in the UK.

Will HSBC provide clients with the option to upgrade their bank accounts for smaller arrangement fees or will it link building and contents insurance to larger LTV offers? You bet it will.

While such aggressive strategies should make lenders sit up and take notice, brokers are in an equally worrying position because HSBC does not deal with them. Brokers’ clients can get the Rate Matcher deal simply by walking into one of the lender’s branches.

The solution for brokers is clear. They must emphasise to customers their ability to search the whole market to get them the best deals for their circumstances. Let’s hope they succeed.

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