Current & Expected Proportion of Mortgages Packaged Online in 3 months’ time

est rates and affordability are likely to take effect. Moreover, house price inflation is less likely to be as high in 2007 as in previous years. Jenks says HBOS expects 4% compound house price inflation over the next four or five years. But he does not see lending at £330bn and 4% to 5% house price inflation as a bad thing.

Nor does Jenks see any real deterioration in the housing market. “The market will stay relatively strong and stable because, frankly, we know we need around 209,000 new homes built each year in the UK and we can’t build enough homes, we can’t sort out planning permission and we can’t release land. We have no idea of how to get up to that 209,000 new homes and consistently year on year we will not build more than 160,000 of them so there is an imbalance, which is good news for most in the mortgage market.”

Moreover Jenks says lenders will stick with distributors, providing it makes economic sense to do so. While the strategy of HBOS is to continue to distribute mortgages through its direct channels, Jenks says the lender is committed to distribution through packagers. He adds HBOS is committed to a policy of avoiding dual pricing saying: “The reality is we know distribution is more expensive through packagers but we have accepted that as part of the game of getting access to certain business and certain brokers.”

Packagers, he says, have access to markets that lenders simply can’t get to by trying to go direct through brokers and so are a source of expertise in the specialist markets. But he adds: “One of the things packagers must do is help brokers through compliance. I understand the concerns some packagers may have over that but I am concerned about brokers in 2007. The Financial Services Authority will spend some time looking quite hard at the relationship between the broker and the packager and we cannot afford for the health of the packager community to get that one wrong.

“The reason it will become an issue this year is because the FSA has done the work on all the big lenders and their direct distribution channels and they have come through that pretty clean so the FSA has got to look elsewhere now.”

But Jenks warns there are some clouds on the horizon in terms of quality and inequality issues, a slightly stalling housing market and technology.

Jenks says distributors must ensure they help their lender partners control their costs and that the way to do this is through investment in technology.

“There are still people that spend more on money their company car than on technology. There are not very many of them but there are some. At HBOS over the next couple of years we have around £20m to spend on technology systems where we want to make a step change and we want to do it talking to the packaging community. We don’t want to do it without them as there is still a big distribution opportunity for us so we do see value. But the reality is there has to be sustained improvement.

“At The Mortgage Business we are still getting 40% of our business on paper and we all know it is not the most efficient way to get that business.

“The good thing about technology is distributors don’t need to do anything too difficult. And investment in technology should be about providing better service to the broker at any rate. So it shouldn’t be something that really disrupts the business models of distributors and it should help with their cost base. It would also narrow the gap between lenders using direct to broker distribution and working with the packager community.”