The broker market has gained three new entrants so far in 2015 but, realistically, only one of them can challenge the biggest players.
Having spent the past month trialling its new broker proposition with London & Country, TSB has opened it up to the wider market.
According to the latest Council of Mortgage Lenders figures, despite advancing a sizeable £17.7bn in 2014, TSB made up just 1.4 per cent of the market, placing it in 14th place in the lending volume league table. But the lender is confident that its launch into the broker market will lift it into the top 10 this year.
Moreover, the TSB name is very familiar to the British public. A 1995 merger with Lloyds Bank saw the Trustee Savings Bank become Lloyds TSB Group, with TSB subsidiary Cheltenham & Gloucester giving the new conglomerate a significant share of the mortgage market.
Further acquisitions and failed takeovers followed. However, it was the desperately ill-timed rescue of HBOS in 2009 that not only made Lloyds Banking Group the largest collection of mortgage lenders in the UK by market share but also started a chain of events leading to the launch of TSB Bank into the market as an independent entity.
When the EU forced LBG to offload the TSB brand in 2013, the Co-operative Bank duly attempted to acquire it. But when that deal collapsed after the revelation of a £1.5bn hole in the Co-op’s books, LBG decided to float TSB Bank on the open market.
So as the bank prepared to become the latest entrant to the broker sector, Mortgage Strategy met the man responsible for creating its entire proposition, Roland McCormack, to discuss his ambitions.
As a youngster growing up in Brighton, McCormack had aspirations to become a professional cricketer and fancied himself as an all-rounder.
“I was mainly a batsman who bowled a bit,” he says. “I played a reasonable standard of league cricket but I got to that point where you step up to the next level and you look around thinking ‘I’ve not got a clue here.’ That was the end of that particular ambition.”
Having failed to enter the professional sporting arena at the first hurdle, McCormack turned his attention to sports journalism. But a discouraging careers adviser put an end to that goal when McCormack was just 14 years old.
“I remember in my third year of secondary school I went along to see the adviser, who asked me what I wanted to do as a career. As soon as I told him sports journalism, he essentially stopped me in my tracks and told me to get a trade because I wasn’t smart enough for the job I wanted.”
After completing his A-Levels, McCormack took the first step into the world of finance in 1986 when he started buying and selling traded options from home. That path, while not paved with gold, provided him with an income until the stockmarket crash of October 1987, which “wiped me out”, as he puts it.
At which point, McCormack opted for a complete change of scenery. He says: “For about three weeks I was a daffodil-picker. I kid you not, that is a hard job. You’re hunched over for hours in the day, you make £3 for every 100 daffodils you pick and that is no mean feat.”
McCormack did not stay long in the daffodil fields, joining Abbey National in 1988, at the age of 21, as a cashier. Despite not holding an undergraduate degree, in 1989 he was offered a place on the bank’s graduate scheme. But having gained traction as a mortgage adviser, he instead accepted an invitation to join estate agent Prudential Property Services as a broker.
After a five-year stint working as an estate agency-based mortgage adviser, McCormack made the change that he says was the most important of his career.
“In 1994 I was offered a role as a trainee business development manager for Bank of Ireland. I loved every second of it – BDMs have the best job in the world,” he says.
“You are your own boss, effectively; you are with like-minded people and brokers are good people to deal with. Mortgages are a good product and you have a good time selling them. It was real fun.”
Within five years, McCormack had been made Bank of Ireland’s head of sales for intermediaries, a role he stayed in until 2002 when he was promoted to managing director of mortgages. Three years later he was appointed managing director for Bristol & West Mortgages – part of the Bank of Ireland group.
Reflecting on his career, McCormack believes his experience of working on every step of the lending ladder has helped him most in his current role.
“Having started from the bottom and dealt with brokers day in, day out, you are in a much better position to build a broker proposition and deliver what advisers need,” he says.
“All I have ever done is mortgages and intermediary mortgages. Having been a broker myself gives me a different insight. A combination of broker feedback and 25 years’ experience of doing this has absolutely helped me in building the TSB proposition.”
He adds: “Fundamentally, intermediary lending is a very simple business: it is about good products backed up by great service.”
McCormack spent four years running Bristol & West’s intermediary lending brand – a role that also put him on the director’s board of Safe Homes Income Plans, since rebranded as the Equity Release Council – until, in 2009, it stopped accepting new applications.
“When the crisis hit, the mortgage market basically halved and it was something we just had to face up to,” he says. “Obviously, I was running the mortgage intermediary arm and we stopped lending through intermediaries so there was no job to do.”
Despite the downturn and its effect on his career, McCormack reflects on his time at Bank of Ireland with great fondness, saying many of the contacts he made in the industry have remained friends to this day. “My departure was amicable and I still have great, genuine affection for the people at the bank. I had a great time working there.”
McCormack was not out of work for long, joining Connells Asset Management and LPA Receivers as managing director later in 2009. While it was a different market from the one he was used to, McCormack says he learned valuable lessons at CAM.
“We dealt with distressed properties and, despite how some people feel about receivers – often people think it involves just taking someone’s home – we really strived to maximise value for people facing a tough situation and I learned a lot in my time there.”
With CAM based in Leighton Buzzard in Buckinghamshire and McCormack’s family based in Bristol, he was forced to be away from his young children for long periods and soon decided to do something about it.
He set up The McCormack Partnership in 2010, offering consultancy services to financial institutions that either had already launched or wanted to launch an intermediary mortgage distribution channel. The work involved taking on contract sales and marketing roles at different bank and non-bank lenders to help grow their lending volumes in the broker channel.
New brand, new approach
But the lure of creating a new broker brand proved too much for McCormack. He closed his consultancy after joining TSB as mortgage intermediary director in February 2014.
He believes the collapse of the Co-op deal in 2013 was a turning point for the new brand.
“We had been planning this launch for over a year and, once it was clear that our future was to be independent as opposed to joining the Co-op, we started that day to build our intermediary capability,” he says.
“We are not HSBC; we haven’t been dragged kicking and screaming into the market. We’ve been planning for this for some time.”
McCormack says he was given licence to create the broker arm from the bottom up.
“We literally started from scratch,” he says. “That meant securing a new building in Bristol to house ourselves in, building the systems and getting the people and the processes in place.”
A recruitment drive has taken its broker staff total to 179, including former Lloyds Banking Group and Intelligent Finance intermediary manager Brian Ewing and former Barclays new-build manager David Gillam, who is a national account manager.
With TSB’s prime goal of providing brokers with outstanding service, getting the right team in place was deemed crucial, says McCormack. “We want the right people – they are the biggest part of our offering,” he says. “I’ve seen that people can copy your products, criteria and rates, but what they cannot replicate is the level of service you offer brokers – and that is where we hope to make our mark.”
In particular, TSB hopes to set itself apart from rivals with a guarantee that brokers will receive a phonecall or email on the same day that they contact the lender, as long as they do so before 5.00pm.
“We’ve had a bit of a divergence in the market since 2008,” he says. “But while brokers have increased their professionalism, and standards have really gone up, in the lending environment we’ve just had a focus on doing things as cheaply as possible.
“We want to make sure that efficiency and cost management do not hinder the service we offer our broker partners.”
McCormack says brokers will be able to speak to an underwriter if an application hits a snag.
“It is what we call our ‘expert to expert’ offering,” he says. “Brokers want to be in direct contact with the people, the experts assessing their application, and that is what we offer. No middleman; just a direct line to the person looking at your client’s file.”
He continues: “We think there has been a polarisation between entirely automated systems and completely specialised underwriting. We feel we have created something that takes the best of both worlds.”
McCormack is coy when asked about TSB’s gross lending target this year but he says the launch into the broker sector should make the lender a major force in the market.
“We have a very defined target for lending in 2015 but, without giving away sensitive information, I can say we will be a top 10 lender this year,” he says.
The lender has opened up its broker panel to include First Complete, Intrinsic, L&G Mortgage Club, Mortgage Advice Bureau, Mortgage Intelligence, Personal Touch Financial Services, Pink, Sesame and Tenet. It is also distributing through the 60 largest DA firms and will be completely whole-of-market by the end of 2015, says McCormack.
“We won’t go all guns blazing from day one, hence the phased entry into each sector,” he says. “We are a mainstream lender so we will be in all aspects of the market. That encompasses residential purchase, remortgage, low LTV, high LTV and buy-to-let. But we will do this over the course of the next four months, launching into one sector at a time. We are not a niche lender.”
Since the MMR, brokers have strongly criticised lenders that take account of factors such as pension contributions and protection premiums when assessing affordability. However, McCormack promises brokers that, at TSB, discretionary payments will not affect affordability.
“One of the frustrations brokers have told us about in their feedback is around how other lenders assess affordability,” he says.
“Some lenders have penalised borrowers because of discretionary expenditure going to things like protection. We will take an approach whereby a discretionary payment will not affect affordability. We don’t think clients should have to pay because they have taken proper financial caution.”
He adds that TSB’s pricing will be in line with that of competitors but says the lender is confident it will win business because of its service. He says: “We will respond to the market on pricing but we stress that our service and relationship proposition will drive more volumes for the same price.”
TSB has confirmed it will pay AR firms a procuration fee of 0.4 per cent gross, while DA firms will receive 0.33 per cent.
McCormack says: “We don’t want to pay more than the market because we don’t want to attract business based on the fees we pay. And broker feedback has shown us that they don’t want to be bought – service and products are still king.
“Second, it mustn’t be a disadvantage for a broker to use TSB, meaning we must keep our fees in line with the market to make sure a broker isn’t losing out himself by choosing a TSB product for his client.”
Recently, there has been a spate of lenders increasing their proc fees. McCormack believes this is because lenders have realised they have underpaid brokers since the financial crisis and they now acknowledge the amount of additional work that intermediaries must do post-MMR.
He says: “Fees came down after the crash and, while the good brokers have remained and really cleaned up the market, fees haven’t returned.
“In terms of our fees, we haven’t felt the need to review them again based on the rises announced recently, which gives an idea of where we are.”
Ingredients for success
McCormack says his long experience in the mortgage industry has helped him shape his vision for TSB’s intermediary arm. Having worked as both broker and BDM, he is well placed to know what makes a smooth mortgage process and believes he has achieved that with his new proposition.
“We don’t just hope for the best at TSB and that applies to our launch into the broker channel. We expect to be successful in the intermediary market,” he says.
“The industry has needed more competition for some time and I’m really happy to have used my experience, and that of those who have joined us, to put together what we feel is one of the most attractive propositions for today’s brokers.”
With a former broker at the helm who recognises the importance of good service and has been allowed to build a proposition from scratch, TSB appears to have all the pieces in place to become a success in the market.