Nationwide has reason to be feeling smug after coming out of the financial crisis in better nick than some of its competitors. It didn’t need bailing out, didn’t suffer a mountain of arrears and repossessions, and actually helped rescue a number of failing building societies.
While its lending dipped along with the market it has started to grow again and snatched 12.4% of the mortgage market in the six months up to September 2011. It lent £8.9bn in the period compared with £6bn the year before and its appetite remains strong for this year.
And with no dual pricing, Nationwide for Intermediaries has been on the side of the angels from a broker perspective as well. Nationwide for Intermediaries was set up in 2008 – right in the middle of the credit crunch. Ian Andrew, now managing director of group intermediary sales at Nationwide, was the man hired to get it up and running.
Previously Nationwide only had a specialist broker arm and was not seen as a major intermediary player. But with brokers putting through around six in 10 mortgages in 2007, the lender wanted a piece of the action and set up Nationwide for Intermediaries.
The timing was unusual because while lenders were restricting lending and downsizing in some cases we were recruiting
The society brought in Andrew from Northern Rock in early 2008. His job was to set up the broker arm across all Nationwide brands and to run it alongside its existing BDM team.
He recruited six regional sales managers and 48 BDMs, going live at the end of April 2008. But market conditions soon made it unreasonable to run two separate sales teams so they were merged on January 1 2009.
Andrew managed the team until November 2011 when he was appointed head of intermediary sales for Nationwide and The Mortgage Works.
“When we started building the broker business Nationwide didn’t have a good reputation,” he says. “It had to compete on price as it didn’t have the service proposition. It was definitely the right decision to build a broker sales force.
“The timing was unusual because when lenders were restricting lending and downsizing in some cases, we were recruiting a whole sales force. The timing was strange but we stuck at it.”
And on recounting his experiences when he left his previous employer, the ill-fated Northern Rock, it is clear he has a knack for timing. He had been charged with setting up a specialist lender for the doomed brand with backing from Lehman Brothers.
It followed almost two decades of working through the ranks of the bank as an IFA, BDM and head of sales across the company. In 2006 he was asked to get Northern Rock involved in the booming specialist mortgage market.
“At the time specialist lending was the big thing and we wanted to be involved in it,” he says. “It took a bit longer to get started than we would have liked but we built a sales force and systems and got off to a good start. Six months later Lehman Brothers started pulling back for reasons we didn’t understand.
“Business was going well and we were gaining some traction. We were going to Lehmans and developing more products but it was retrenching and we didn’t know why.”
Specialist lending ground to a halt in the summer of 2007 and the run on Northern Rock was just a few months away. Fortunately Andrew encountered a couple of opportunities that summer – to become head of sales at Alliance & Leicester or at Nationwide. He was interested in the latter and was interviewed for the role during the turmoil at Northern Rock. By the end of the year he had left.
“The timing was good,” he says. “I was fortunate to get the phone call when I did because specialist lending was beginning to slow and I had a fantastic opportunity to join Nationwide and build its broker sales force.”
There is no doubt that Nationwide is now popular among brokers after launching its products under the NewBuy Guarantee scheme through all intermediaries last month.
There are few complaints about its service and like a Premier League referee, the less you hear about it the better job it is doing. Andrew is determined to stay committed to intermediaries and repeats this mantra throughout the interview. It seems Nationwide sees brokers as the way to distribute mortgages but it can all change quickly.
Earlier this month the society cut its proc fees for directly authorised brokers from 0.35% to 0.33%. The news was announced on the same day that Lloyds Banking Group cut its proc fees, sparking fears that fees were set to fall across the board.
Andrew says a review of proc fees showed it was paying more than the competition so they were reduced accordingly.
“We are no longer overpaying in some areas,” he says. “I don’t expect it to have a significant impact on our volumes because it’s a small change. Collectively though it makes a big difference to the organisation at a time when we are trying to bring costs under control.”
He states there is no agenda to get rid of proc fees and that Lloyds group’s changes on the same day were a coincidence.
“Some of the scaremongering about lenders completely withdrawing proc fees is wide of the mark,” he says. “We will continue to review fees but have no further plans to change them.”
Earlier this month it was revealed that major lenders had been threatening to drop their proc fees in light of ING Direct’s deal with Legal & General Mortgage Club.
Mortgage Strategy understands the pilot at the time was operating with a proc fee below 0.3% causing other lenders to consider their rates.
Andrew says lenders must consider what the competition is charging otherwise they gain an advantage.
There’s panic from brokers with paper applications to get them off their desk and secure the rate before it goes up
“If you’re saving on your proc fee against the competition you could build some of that saving into product development, make them more competitive, and migrate business from other lenders,” he says.
“The ING launch last year probably did have lenders looking at proc fee levels. They were probably thinking that if that was the new level of proc fee it took to be appointed to a panel of a mortgage network or club then why would they want to pay 0.1% more?”
Focus on Technology
Last year Nationwide’s specialist lending arm TMW launched a phone app to give brokers access to an affordability calculator while they were on the road. Take-up has been good, reaching more than 1,000 downloads about a month ago.
The most significant area of technology it is investing in is to limit, and eventually end, paper applications. Andrew admits the number of problems associated with paper is far higher than those submitted online. Nationwide is working to bring certain paper-only applications, such as shared equity deals, online as soon as it can.
“We have a disproportionate amount of problems on paper applications,” he says. “Brokers fill in online applications better than on paper because there are certain things you have to complete before you progress. The problems have been exaggerated because of short withdrawal times of an hour or two. There’s panic from brokers with paper applications to get them off their desk and send them in to secure the rate before it goes up.”
This, he says, has led to the deterioration in the quality of paper applications, with Nationwide’s processing staff having to spend time chasing brokers for information. This detracts from the ability to process cases that are fully completed.
“It’s something we are looking at and we may start to take a hard line on it by saying the application won’t be processed and will be sent back to the broker until we have all the information,” he says. “It is fair to the many brokers who do take the time to fill in applications accurately.”
Quality of applications and packaging of information is the main bugbear of lenders. They have tried to deal with it in different ways, such as educating brokers about the trouble poor applications cause or by hitting remuneration.
A major lender is in the advanced stages of shaking up its proc fee structure to reflect the quality of applications and business it receives, but this is not something Nationwide is considering, although Andrew accepts it is possible to do.
“I would prefer to educate brokers about getting it processed quicker, getting clients the money, and receiving the proc fee,” he says. “I would much rather focus on that than penalising brokers for not packaging an application correctly.”
But Andrew says the other side of this equation is the quality of business submitted, which is different from packaging an application well. Nationwide has a mortgage intelligence system that allows it to look at brokers by firm, network or club.
Andrew says its back book is in good shape, whether it is buy-to-let or owner-occupier, and its arrears fall below the Council of Mortgage Lenders’ average.
And contrary to claims made in the wake of Lloyds group and Nationwide reducing proc fees to DA firms but not appointed representatives recently, there is nothing in its book to suggest DA brokers provide better business than ARs or vice versa.
“We could build the quality of business into our proc fee but we don’t have any plans to do so,” he says. “We have the mortgage intelligence system to keep a close eye on the quality of business to maintain what we are looking for. One thing we see is that there is a direct relationship between brokers receiving a high level of decision in principle declines, a low level of acceptances and then poor back book performance.
“It’s part of the ongoing panel management of brokers – something that is coming under more scrutiny because of the Financial Services Authority’s thematic review,” he adds.
Nationwide is acutely aware of the actions of its competitors as it has shown through its cut to proc fees. In this vein, will SVR rises from Halifax and others spark it into action on its tracker rates?
Moneysupermarket.com analysis shows the average two-year fix at 4.1% after an October 2011 low of 3.82%. For two-year trackers, the average rate was at its lowest in August 2011 at 3.37% but now stands at 3.63%. By comparison Nationwide’s SVR is 2.5% – 2% above the Bank of England base rate – leaving its borrowers with incredibly low repayments.
Indeed, Andrew himself is one of the lucky ones on this killer deal and he cheerily informs me there are no plans to change it.
For rising mortgage rates it is the cost of funding – both retail and wholesale – that is to blame, he says.
“The wholesale markets have relaxed a little since a couple of years ago but there is still a nervousness because of the eurozone crisis,” he says.
“The cost of retail funding has also risen significantly. It is ultimately the cost of funds that is reflected in the price of mortgage products lenders can offer.”
The other major issue stalking the mortgage market is regulation, in particular the Mortgage Market Review. Lenders are fighting proposals to ban non-advised sales because of the increased cost of training staff and lengthening the sales process.
The CML argues that advised sales take an average of 1.7 hours longer than a non-advised sale. Nationwide has set up a steering group to consider the regulations and their effect and will also report its findings to the FSA.
Andrew’s main complaint with the FSA is a familiar one – the lack of progress on individual registration – but he doesn’t envisage too many changes.
“It was the main positive aspect of the MMR for the intermediary market so it’s a shame it has been put back,” he says. “Broadly the MMR is positive for brokers and I don’t see it significantly changing the relationship between them and lenders. Lenders will take more responsibility for controls and checks but it has always been their responsibility to lend anyway.”
Brokers he says will still have to get in front of clients, do a full fact-find, look at income and outgoings, and assess affordability – all before they look at lenders and product selection.
“I don’t see it being any different to what they do at the moment,” he adds.
One area where significant change is occurring is interest-only mortgages with an exodus of lenders. Some claim to be responding to the MMR proposals to ensure there is always a repayment vehicle in place, while others say it is a commercial response to lenders’ decisions.
The proportion of lending some lenders have done on interest-only has been too high, he says.
“If you have a back book with a significant proportion of interest-only customers without any repayment vehicle in place and you know there will be lots of interest-only maturities in five or 10 years’ time, it is a difficult place for you to get into,” says Andrew.
“No-one wants to be in a situation where they have to force someone out of their house when they’ve made monthly payments for 25 years.”
Some firms are trying to reduce their interest-only problem by cutting back on interest-only customers now.
“When other lenders moved and we didn’t we ended up with a disproportionate amount of business on interest-only,” he says. “Within a short period of time we saw our proportion of interest-only decisions in principle increase quickly. It’s the first sign it is going to work its way through to a higher proportion of interest-only applications.”
While Nationwide is happy with interest-only, it only wants a certain level, so it also had to make some changes to its policy. Andrew says it is probably now a niche product because market conditions don’t need the affordability stretch previously required.
“A few years ago people were stretching income multiples and affordability to secure a property and interest-only was a good way to do that,” he says. “With interest rates being low now affordability is less of an issue and it’s more about deposits for first-time buyers.
“Technically it should be more of a niche product and more customers should be on capital and repayment because they should be able to pay more and make a dent in the outstanding capital.”
Nationwide is the only lender to offer NewBuy via all brokers – NatWest distributes its products direct-only while Barclays and Lloyds group sell through a restricted panel.
“The majority of our new-build business comes through brokers and only a small amount through the direct channel,” says Andrew. “It’s a product that brokers are familiar with and they seem to drive the new-build market so it didn’t seem to make sense to go through branches.”
Nationwide has made predictions about the number of homes that will be sold as a result of NewBuy and has targeted a share.
“It’s been a slow start and there seems to have been a slight lull since the end of the Stamp Duty holiday at the end of March,” says Andrew.
“There’s been a lot of froth around NewBuy and we haven’t seen it materialise into a high level of applications so far but there is a sense that the removal of the Stamp Duty holiday sucked some business forward,” he says.
“NewBuy is just getting started and we would welcome more lenders coming in with a wider product selection available to intermediaries and builders. We’re optimistic and it should benefit first-time buyers in particular and hopefully generate some growth in the new-build market with more building.”
Nationwide is regarded as one of the bigger new-build players but it did cause consternation among brokers about the way it valued homes.
For four years until last November new-build homes were valued on a second-hand basis to guard against uncertainty in their value.
Andrew is adamant that the decision was right at the time but that it was also right to change it back. “There was a major lack of transparency in the new-build market at the time,” he says.
“While it was unpopular with builders and brokers, as we expected, it was the right decision and has probably saved the organisation from significant issues over the past few years. It was also right to make the change back. There’s a lot more transparency in new-build now and a lot of the new-build premium has left the market.
“It was probably the biggest single issue we had regarding negative broker feedback so it was well received when the change went through,” he adds.
Nationwide has its fingers in every pie from first-time buyers and new-build to remortgaging and buy-to-let. In buy-to-let, with its TMW brand, it has dominated the market alongside the Lloyds-owned BM Solutions for many years but now there are a host of new entrants.
As buy-to-let is a growth area TMW could start to feel the heat of increased competition on rates and service.
“There will be modest growth in buy-to-let and our lending will be roughly the same as last year so we will maintain or drop slightly our market share,” says Andrew.
“If BM Solutions and ourselves maintain volumes and there’s a bit of growth I would expect it to be taken up by new lenders with the traditional lenders starting to dip into buy-to-let.”
Andrew believes the economic indicators for buy-to-let are good and that the sector is a hedge against the first-time buyer market, which remains sluggish.
And as for brokers, he is as keen as ever to assert his commitment to the market.
“We need to make decisions that are not always popular,” he says. “But we have been unwavering in our service, product proposition and our support through the BDM network. We haven’t wavered in this over the past few years in the way some lenders have.”
Ian Andrew CV
Education: Born: 1964, Newcastle
Career: 1987-1990: Financial Adviser, Royal Life
1990-2008: Various roles at Northern Rock including, IFA, BDM, key account manager, northern divisional manager and head of specialist lending
2008-2009: Head of sales, Nationwide for Intermediaries
2009-2011: Head of intermediary sales, Nationwide and The Mortgage Works
2011-present: Managing director, Nationwide group intermediary sales
Hobbies: Golf, football, travel
Favourite film: The Mission
Mortgage: Nationwide repayment mortgage