I am sure you will have seen numerous articles and comments regarding the volumes of business lenders and distributors are reporting and we haven’t really got stuck into the month of March yet. Obviously two months don’t make the annual targets but, all in all, it seems that lenders, in the main, have had a great start to 2007.
I have been undertaking reviews with many of our key lender partners over the past few months and it is clear that many, if not all, have far exceeded their expected volumes and report a great start to 2007. It is also worth noting that the majority of lenders and distributors had a successful 2006. So subject, as always, to our economy and with a with a keen eye on the Bank of England’s inflation and unemployment targets, this year should also see some good trading results.
I have in previous articles touched on the increasing value that lenders are seeing, and acknowledging, in their relationships with the large distributor groups. There are two important points here and, in my opinion, two very real milestones in the lender/intermediary distribution chain.
Firstly, lenders openly embrace the fact that large distribution groups do add value and secondly, they are aware that if they wish to continue to bring in the completion volumes they need they cannot do this without the distribution power of the big packager alliances. In short, even if in the past they have wanted to cut out or reduce their dependence on distributor groups, or they would like to do so in the future, for now (and in my opinion for some time in the future) lenders with big targets need big distribution.
The huge business growth of these lenders is clear to see and they will continue to enjoy the support of the distribution groups. But it is interesting for me to report a record number of previously not-so-packager-friendly lenders which are now making overtures towards several packager groups.
The Association of Mortgage Distributors and Packagers is not in the business of saying no if a lender that has not previously wanted to talk to us now wants to do so. AMPD is happy to talk to any lender but unless that lender understands the packager/distributor model and is able to accept that distribution is not brought to market without some cost then we have a problem.
Another trend, getting much more focus lately, is the increasing number of lenders that are marketing their products on a dual-price basis. Some are open and honest about ” Lenders are aware they cannot do without the distribution power of the big packager alliances to bring in the completion volumes they need”the practice and admit their long-term aim is to increase direct business in order to obtain a better pricing spread.
All at AMPD are aware that lenders have to manage margins and clearly getting business direct reduces their costs as well as their long-term dependency on large packagers/distributors. If you are running any business, then you want the best margins possible. But in the UK at the moment, we have some switched on lenders who realise that for now they need our distribution. More importantly, we have the new breed of lenders with smart online solutions that allow them to pay well for their distribution because their acquisition costs are minimal compared with the ‘older’ lenders with legacy-based systems that are costly to run and offer few savings in the short term.
I am happy to discuss and review products and distribution with any lender but it has to be said that a lender which has dual pricing that clearly offers major advantages for the broker going direct is one I would not want to deal with. Such a proposition would, in my opinion, clearly show that the lender has no long-term plans or ambitions to embrace the distributor/packager community. That is their decision and we accept it.
The AMPD has resisted a new entrant simply on its direct to broker proposition. If we see the direct to broker proposition is better than our deal then why should we accept it? I accept a lender will do what it can to ensure it gets a blended rate. But a lender that cannot understand the benefit of our distribution is unlikely to get far with us.
There are many challenges ahead and I believe the next 18 months will see some major changes. In fact I would go so far as to say that within two years our marketplace will be radically different. Obviously trading platforms, hubs, and online trading are very much in focus at the moment and our plans and aspirations are similar to any group that is determined to survive. Like any other big business and distribution in the UK market is certainly that, we will see a race for survival. Like all races we will have winners and losers and I include lenders as well as distributors.
By Eddie Smith, Operations Director, Alliance of Mortgage Packagers and Distributors