It is stating the obvious to say that the market is changing on a daily basis. Barely a day, let alone a week, goes by without someone else pulling out of the market.
This is leading to increasingly challenging circumstances for those of us who are left and therefore it is surely a time when everyone needs to work together for the good of the market and in the knowledge that those that survive will be fitter and stronger and with a bigger market share than before.
Everyone in the market understands that criteria needs to be tightened, that lenders need to lend, not only to the most secure, but also to the most profitable clients that they can – hence the tightened criteria, reduced LTVs and fewer self-certification and adverse cases.
What no broker can understand is the speed at which products are pulled or how such action is treating the broker or the customer fairly, or showing any regard for the distribution chain.
Obviously, if a lender runs out of a tranche of money then it can no longer lend it. But what is incomprehensible is why the lenders’ distribution chain cannot be informed of this before it runs out and the product needs to be pulled? Why is it necessary to give only 24 or 48 hours’ notice – not even long enough to get a signed application form back from the client – and why can the pipeline of business not be honoured?
Each lender surely knows how much money it has and how quickly it is being lent out day by day. It can’t possibly be a case of coming in on a Monday morning to find that “Oh dear, all the money has gone. We weren’t expecting that. We had better pull our products immediately.”
Therefore, if a lender can calculate that at the current rate of lending it will have to withdraw its products in two weeks’ time, brokers need the lender to give them that amount of time to get the business in and get it processed.
SPPL withdrew from the second charge market but gave reasonable notice to allow its brokers to work the pipeline deals to completion. Unfortunately, we haven’t had the same commitment from all lenders.
A cynic would say that the lack of notice could be seen as a damage limitation exercise – while the lender still wants to lend it does not want to risk brokers knowing that a product has a limited shelf life and so start putting their business elsewhere. The lender wants to ensure that it gets all the business it can but informing brokers and customers that products are not available with no notice simply is not acceptable and will damage the distribution chain, rather than supporting it so that it can continue to sell the lender’s products when it needs it most.
This lack of notice when pulling products is hugely damaging to brokers – even threatening the survival of their businesses in some cases. And we have seen a lot of brokers disappear from the market, often not long after a number of lenders have pulled a tranche of products.
Generating new clients and placing business with a lender is costly for a broker. It has often paid to generate the enquiry or buy a lead. It will pay for a mortgage reference, for a courier, for a full valuation in the case of secured loans where you cannot pass the charge on to the customer. And that is in addition to the staff costs in processing the business.
If all of this work results in an application being placed with a lender that then withdraws the product suddenly and does not honour its pipeline of business, then much of the cost of placing the loan or mortgage has to be repeated. If many of a broker’s cases are going through the same lender it can be hugely damaging.
Brokers can only continue to support lenders if they have confidence in that lender. Lenders should reciprocate broker loyalty by keeping them in the loop and giving them notification information as soon as it is available rather than delivering it at the last minute. The majority of brokers accept why the products are being pulled, so please just give us time to complete the deals we have already sold on your behalf.
In challenging times it is important that the industry works together and the best thing that brokers and lenders can do is to be transparent with one another. For example, it is not worth lenders getting a commitment from brokers to place a certain amount of business with them if this is going to be unrealistic or the quality of the submitted cases is low, meaning that few convert. As lenders currently have limited funds it would be worth focusing on quality, and cultivating business from the brokers that provide them with better quality cases that they know are likely to convert and to provide a good return.
Everyone is having to work more efficiently at the moment as brokers sometimes need to see four times as many clients as they would have done last year in order to complete the same amount of business, because the products and the criteria are just not there.
Working with brokers to ensure they are as efficient as possible will mean that lenders receive more of the high quality business they need. And by respecting those brokers and giving a minimum of a week’s notice when they do need to pull products, lenders will ensure they continue to have a loyal distribution channel that will help to give them a competitive edge, while helping to ensure that distribution channel also remains.