What has been the biggest challenge you have ever faced, either in or outside business?
In six years of trading as KGB Packaging, the biggest challenge we have faced is happening right now with the credit crunch, and most of the industry would say the same. Along with all other packagers, we have had to adjust the way we think, and work with smaller margins. This means having to drive volumes up just at a time when there are fewer lenders, fewer products and more restrictive criteria.
What do you feel are the biggest challenges facing the packager market?
One of the key challenges is finding the right technology at the right price that is acceptable to the lenders that you package for. Some packagers have opted to invest a lot of money in bespoke systems, but there are also some very good off-the-shelf systems (DPR, Gravity, Edge, etc) that can deliver what is needed, so individual packagers don’t really have to keep reinventing the wheel.
Being retained on lender panels –when most lenders are cutting back their panels – is another big challenge. Here, strong relationships are so important. We have always had a large panel and very strong lender relationships so this has made the last few months a lot easier, as it means we weren’t struggling to find new lenders willing to have us on their packager panels. It has also helped us to adjust back to prime, mainstream business more easily once the sub prime lending sector started its demise, as we already had packaging agreements with the mainstream lenders,.
There is also the matter of lenders pulling products with no notice, which has placed a huge strain on packagers as they have to do double or treble the amount of work to find the right deal for the broker and his/her customer
Do you feel confident for the packager market?
It depends on the individual packager’s business model. We have been relatively fortunate because, in addition to our large and varied lender panel, we have a wide and loyal base of brokers and have built up their trust over the years. Our model of having one staff member own a case from cradle to grave is a very strong selling point with brokers, as is the fact that we have service level agreements in place and we stick to them. Having our offices in Barnet also means that our overheads are low compared with other businesses located in the centre of London and the other main cities.
There has been much debate about satellite packagers, what is your view?
I believe that lenders find it hard to deal with satellite arrangements and, now that lending volumes are down and lenders are no longer hungry for greater volumes, they can stop dealing with satellites. They much prefer to deal with the main packagers who have the full experience and expertise that are needed, especially in the current marketplace
Do you think packagers need to morph into broker based companies to survive?
No. In fact, we recently closed down our B to C operation so we could concentrate primarily on packaging. This also gives us the advantage of offering our broker base a “no conflict of interest” guarantee.
How have you adapted your business in the past few months?
Like everyone else, we have had to cut back on non-essential expenses such as entertaining and advertising, which we would not have blinked at this time last year. It’s very tough for brokers too. Some brokers who were confident that they had a good grasp of what was in the market six-to-nine months ago are now altering the way they do business by sending more cases to a packager. This is because the packagers get up to date product information from lenders that is not openly advertised.
Do you have any tricks up your sleeve as a company or are you going to instead sit tight and weather out the storm?
We certainly intend to sit tight and weather out the storm. We don’t have any magic tricks up our sleeves, but we are putting a lot of thought and effort into diversifying into areas such as MPPI, legal services (in conjunction with Goldsmith Williams), debt management and IVA services, and equity release.
Do you feel broker perceptions of packagers have changed in the past few months?
Brokers need packagers even more at times like these, and we are seeing volumes rise. Our expertise and lender knowledge are now premium commodities that many brokers are finding they can’t do without.
Do you predict the broker or the packager market will suffer the most as a result of the liquidity crisis?
Both are suffering, as are the lenders. However, packagers are a very resilient and entrepreneurial sector, and are bound to adapt to the new market and re-emerge with a good offering to both lenders and brokers. This situation can’t last forever as there is a huge pent-up demand and at some point investors will not be able to resist the pull of the profits to be made in mortgage lending. There are lot of innovative and highly motivated personalities in the lending sector who are ready to return as soon as conditions allow. When that happens, we will be ready to step up to the mark.