The mortgage distribution marketplace is subject to continually changing dynamics and, while we need to make sure that our businesses are profitable day by day, we also need to plan for the future. Part of this strategic planning should be assessing how growing issues in the marketplace may affect our own ability to trade profitably and grow our businesses. At the moment, I believe that one issue having the potential to change the dynamics of mortgage distribution significantly is that of lender retention strategies, especially with regard to the future shape of the remortgage market.
Retention fees paid by lenders to brokers, when they recommend the client stays with the same lender rather than switch to a new one, are a hot topic at the moment. Lenders that pay brokers under a retention fees policy quite reasonably defend their stance and ” There are features that packagers can build on to secure their important role in the distribution chain”cite benefits such as better and stronger customer relationships, and the fact that brokers are rewarded for their work where previously they could have remained empty handed. On the other hand, some lenders which do not yet pay retention fees are pointing out that if a lender has the best products it does not need to offer fees because brokers are obliged to recommend the best products.
The new element of lenders rewarding brokers for retained business has yet to show its full effects in a constantly evolving distribution market. But it does not mean the distribution sector can sit back and wait. There are clearly threats for packagers, but there are features that can be built on to secure their important role in the distribution chain.
In the retention process it might emerge that customers’ circumstances have changed since their original deal was signed. A few arrears, perhaps, or a change of job – maybe to self employed status. Since many remortgage deals are sought to consolidate debts, it is reasonable to suppose there has been a financial glitch somewhere along the line.
The lender seeking to retain borrowers can, of course, cascade them down to a non-prime product – and it has been suggested the large mainstream lenders have started to offer near-prime products so they can catch customers early and cascade them into prime products once they have repaired their credit. However, cascading runs into the same problems as remortgage retention – advised sales must go through a process that includes searching the market – not just the range offered by one lender.
How can the distribution sector best face this new dynamic in the marketplace? I suggest we need to play on the strengths we already have, such as offering brokers the best products and service. We also need to bring the entrepreneurial spirit into the forefront and find ways to enter new sectors. After all, remortgaging has not really been losing ground to purchase business, but to other types of borrowing. According to the Council of Mortgage Lenders, the percentage of ‘other’ mortgage lending (including further advances, lifetime mortgages, buy-to-let and other loans) has risen from 10% in January 2005 to 18% in January 2007. Perhaps it is time to develop our distribution power more actively in these (and other) growing sectors.