Just off Euston Road, on the edge of Regents Park, lies Santander’s grand UK headquarters, an imposing glass structure that casts a large shadow over part of London’s West End.
Two years ago, the bank cast a similar shadow over the mortgage market, dolling out more mortgage money than all but Lloyds Banking Group. To put their size into context, they were responsible for nearly two-fifths of all mortgage advances in 2011.
Back then Santander was the lender of choice for brokers, having seemingly put its well-documented service issues behind it, and it had an impressive 16.8 per cent share of the UK mortgage market.
But by the end of 2012 it had slipped from the second biggest mortgage lending by advances to fifth, with its market share falling dramatically to 10.2 per cent.
So what happened? How did Santander go from £23.7bn of gross lending in 2011 to £14.6bn the following year? And will we ever see the same Santander we saw 18 months ago?
Like most other banks, Santander embarked on a deleveraging exercise of massive proportions about two years ago in an effort to restructure its balance sheet and build its corporate bank.
While it never left the mortgage market, few would argue the notion that it had been nowhere near the force it was merely 18 months ago.
But when Mortgage Strategy went to Santander’s offices to interview Phil Cliff, the bank’s director of retail products and services, earlier this month, the message he wanted to communicate was clear: Santander is back.
Cliff, who is informally known as Santander’s director of mortgage lending, is cautious about quoting figures but he is keen to emphasis Santander will come back into the market in a big way.
“If you were to look at the pound level of lending we did in 2012, we’d like a significant uplift on that in 2014,” he says.
But Mortgage Strategy understands that Santander plans to lend around as much as it did in 2011 – £23.7bn – in 2014. This is likely to push it back into the top three, taking into account the likely growth of the mortgage market and rivals’ lending ambitions, at the very least and probably even second.
To the edge of the Cliff and back
It has clearly been a tough but interesting time for the lender. Cliff took over responsibility for Santander’s mortgage proposition, including marketing and coordination, in 2008 at a time when the whole financial world was in meltdown.
But by the time Lehman Brothers toppled over, Cliff had already had 20 years of banking experience behind him. However, he nearly took a very different career path.
“In truth, I got into banking quite by accident,” he explains. “I had two choices: I had a placement at art college, which is what I was going to do. But my friends were all applying for jobs so I thought ‘I’ll apply for one and if I get it, I’ll go in, and if I don’t then I’ll go to art college’.”
Cliff’s two sisters were in banking, so he decided to apply for a job in NatWest in 1988. Natwest put him on the senior leader development programme and paid for him to study for a degree in banking part-time.
He spent four years in branch banking before taking up roles in insolvency and debt recovery, recruitment and HR and communications in the 10 years before he left for Abbey National in 2000.
He joined Abbey as a programme manager, working across retail banking, telephony integration and implementing the bank’s European monetary union programme.
“In 2000, RBS took over NatWest and that is the point I decided to move on,” he says. “I didn’t want to relocate to Edinburgh, which was where my job was going.
“At that point I joined Abbey National as a programme manager on the retail sales and lending side. I went into marketing in 2004, initially managing the commercial planning piece. Then the takeover happened with Santander and at that point I started to specialise on profit and loss management and customer relationship management.”
In 2008, Cliff became Santander’s mortgage marketing director, after covering for the previous incumbent while she was on maternity leave. Then in 2010 he became responsible for all personal lending – mortgages and other types of loans.
Despite a tough five years, Cliff says he has enjoyed his time in the mortgage market.
“I find it really interesting; really challenging; really competitive. What is very different about this role is the connection with your peers, with the competitors and the rest of the marketplace,” he says.
“It is difficult to remain competitive but what is difficult is doing that while balancing the risk and revenue piece, alongside the customer experience. And obviously when you lend through an intermediary it is really important to make sure you maintain good relationships and links and make sure you understand what your intermediary customers want as well as what their customers want.”
So five years on and with the prospects for the mortgage market seemingly improving, how will Cliff ensure Santander can reclaim its spot as the nation’s second largest mortgage lender?
Cliff wants to ensure borrowers walk away with the products they need and want. The tagline the lender is using to describe this is freedom – the freedom to join the bank, freedom to overpay, freedom to save money by using its cashback current accounts and the freedom to leave the bank.
A demonstration of this principle in action will come later this month when Santander launches a new mortgage range of trackers with no early repayment charges.
It also began its first TV advertising campaign for mortgages in six years earlier this month, demonstrating its ambition to increase lending.
“What we want to say to our customers is if the freedom of moving your mortgage – even away from Santander – is that important, we want to have a greater range of products in the range without early repayment charges, for example,” he says.
“What we want to do is put relationship banking at the heart of our mortgage business, even through a broker, and we want to understand what our customers really want in a mortgage and then we want them to select a product which has the features most important to them.”
On top of that, Cliff promises Santander will continue to strive to be competitive on price and he wants to target loyal movers, meaning customers with a Santander mortgage who wish to move home, by offering discounted products for these borrowers and continuing to offer brokers the full procuration fee for that business.
Another key area for the bank is buy-to-let. This month Santander will raise its maximum loan size from £500,000 to £750,000 and it will reduce its affordability rate from 6 per cent to 5 per cent, meaning the lender will require the landlord to charge less rent to qualify.
“We re-entered buy-to-let about 18 months ago and we always said we would not come back until we had an automated process that worked well. We did that and now we want to widen our policy in terms of the business we want to accept on buy-to-let,” he says.
However, Cliff caveats this by stating that Santander will “never be like The Mortgage Works”, one of the biggest buy-to-let lenders in the market.
Brokers are also firmly part of Santander’s future plans. He says that presently, around 75 per cent of the bank’s mortgage business goes through brokers and this is unlikely to change much in the future.
“Our mix is broadly 75-25 in favour of intermediaries and it feels like that is where we are meant to be,” he says. “However, what we are more concerned about is being available in all channels for the customers who want to do business in those channels.”.
“If, for example, out of 100 customers 90 want to go through a broker and 10 through a branch, that is fine. What we need to make sure is when they choose that channel they see a good, competitive proposition, great service and the freedom to choose a product that is right for them.”
An area of concern for brokers is that once a lender ramps up its lending it normally leads to service issues and delays.
Cliff admits there could well be service problems in the future but he is adamant the lender will strive to set them straight as quickly as possible.
“As soon as we think there is potential to slip [on service] we have a flexible resourcing model where we will bring extra resource in to support that,” he says.
“Or if we don’t we will talk with brokers directly to see what we can do to smooth out the peaks. We are not saying there will never be any issues but when there are we will act quickly to sort them.”
Follow the leader
In July last year, Santander shook up the mortgage market by becoming the first lender to reward brokers with commission linked to the quality of business they submit. Quality is measured against a number of key metrics, including case packaging and the conversion rate of applications to offer.
Earlier this month, Mortgage Strategy revealed Lloyds Banking Group will follow Santander’s lead by linking proc fees to business quality.
Cliff says Santander’s switch to a new remuneration system has been a success and despite some of the biggest lenders issuing statements rejecting the idea in the near future, he feels the market will be forced to follow suit eventually.
“We have definitely seen an improvement in quality. It is definitely enough to reassure us that it was the right way to go,” he says. “And particularly when you go into the MMR, quality is going to be even more important.
“It is another example of where we are ahead of the game. I anticipate the whole of the industry will need to move there because those lenders that use brokers will have to have reassurance around quality.
“My answer to those that are not considering it is: why wouldn’t you do that? Why wouldn’t you want to differentiate rewarding somebody for the quality of their work when there is a direct correlation between the lender’s costs and the quality of business from the broker?”
“We have to compete”
In the past three or four years, the Government has intervened in the mortgage market in order to stimulate activity.
This has taken the form of the Funding for Lending scheme, which offers lender cheap funding in exchange for a commitment to maintain or increase their net lending levels, and Help to Buy, a two-pronged scheme to boost lending to borrowers with small deposits.
The FLS is beginning to fire up after negative net lending in two of the first three quarters since it launched. In the second quarter of 2013, FLS participants registered a positive net lending figure of £1.6bn.
Santander’s net lending through the scheme, on the other hand, has plummeted £10.4bn since the scheme’s launch in August 2012, almost surely as a result of its ambition to deleverage.
But Cliff is adamant this will not affect its competitiveness.
“We have a choice as a bank as to what degree we participate in the Funding for Lending scheme,” he says. “Irrespective of our relationship with Funding for Lending, it doesn’t change the fact mortgage rates are low and, therefore, we have to compete with that.”
Cliff believes that mortgage rates will increase when the FLS comes to an end in 2015 but is optimistic that lending will not drop off.
“I think as funding costs increase then I think mortgage costs will increase,” he says. ”A lot of my friends ask ‘do you think mortgage rates will get any lower?’. Personally I don’t think they will.
“I don’t think we will [see a tail off in lending when the FLS comes to an end] because I think you have got several things netting off against each other. On the negative side of this you have got regulation coming in which will make people have to prove more onerously that they can afford the mortgage. You have also got potentially increasing mortgage costs.
“But on the other side of the equation you have got – hopefully – a growing economy with house price inflation and you have also got some of the government schemes like Help to Buy which are incentivising lending in the market place. So you get a net impact which is positive and therefore we do see growth.”
Santander has already joined the £3.5bn equity loan element of Help to Buy but, unlike rival Lloyds, it has not yet committed to joining the second part of the scheme, the £130bn mortgage guarantee scheme open to all property types, not just new-builds like the first part of the scheme.
Like most other lenders Cliff does not want to commit to joining the scheme until he receives details about the cost of the guarantee and what the capital relief structure will look like. However, he has offered the closest thing to a commitment that he can without having the full details.
“We are looking, like the whole of the industry,” he says. ”A lot of the detail is still being worked through. Our position, which I think is broadly shared by the industry, is we think it is a positive thing. We are looking to participate, subject to understanding the details of the scheme.
There has been a lot of comment in the press recently about the emergence of a housing bubble, especially in London and the South East, which will be accentuated by Help to Buy. But Cliff isn’t convinced that the scheme will stoke another housing bubble.
“I don’t think we are going to see a huge housing bubble,” he asserts. “The scheme has a specific lifespan and it has been brought in at a time where the market is at the bottom, despite recent growth, and therefore there is lots of space for growth. And I think the MMR will act as the lid on the cooker to stop it getting that far.”
So while it is not clear whether Santander will join the Government’s new scheme, one thing is abundantly clear: over the next year brokers will see a new but familiar Santander – one which will hopefully resemble the 2011 vintage.