The debate about lender capacity has been going on for as long as I’ve been in the centralised lending market – some 20 years now.In the 1980s new centralised lenders attacked the traditional prime market by keeping costs low, with clever funding mechanisms such as securitisation and by focussing on the intermediary market. This had never been done before and the result was cheaper rates for customers. The same lenders were responsible for new processing techniques, the implementation of front end computer systems, product development and robust sales and marketing strategies. And they were the drivers of a shift in distribution patterns, taking market share and shifting intermediaries to a more dominant position. Then in the mid-1990s some bright sparks from across the pond spotted a gap in our market – sub-prime. Traditional lenders had retreated behind the parapets to ride out the negative equity legacy and tightened criteria to limit future exposure. New lenders poured in, most distributing in the intermediary market and bringing an innovative concept with them – pricing for risk. Again, they took market share and at a time when profitability of prime business was non-existent they made money. But in both the 1980s and 1990s scenarios, the result was the same – acquisition of the new lenders by larger players attracted by distribution and profit margins. By 2004 none of the lenders launched in the mid-1990s remained independent bar Kensington. In the past few years we have seen a number of entrants, Beacon Homeloans being the latest to join the party. There is no reason to think the cycle of launch and consolidation will not continue. Competition is healthy, bring it on. The simple answer is yes. It’s reasonable to assume that the former HBOS team soon to join Oakwood will apply their skills and experience in the sector they know best. But in doing so, they’re unlikely to be the only lender entrants in 2006. After all, Bill Dudgeon and his former The Mortgage Business colleagues have not moved to Deutsche Bank to set up a flower shop. And there’s been more than a little speculation about the intentions of a number of cash-rich, margin-hungry investment banks. They all seem to think there is room and I agree. But the degree to which they are successful depends on a number of factors. First, old loyalties should be seen in perspective and not be taken for granted. Astute, forward-thinking introducers will rightly base their partnership strategies on long-term and sustainable fundamentals including access to good products and advanced reliable technology, excellent service, sound personal relationships and consistent support. Any lender aspiring to a place among the established players must tick these boxes early. New entrants also need to be mindful of the cooling economic climate. The available mortgage market is stagnant and probably set to shrink in the short to medium term. And the established players are not simply going to roll over and let the new kids have a clear run. This same scenario has been played out time and again in our still-youthful sector and both newcomers and established players have always prospered. But these were at times of growth in demand for mortgages and loans. That’s now changed so it’s going to be tougher this time. That said, the fresh round of competition will be good for the market, producing as it will fresh ideas while extending customer choice.
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