In the prevailing market conditions we are seeing a fundamental shift in the nature of mortgage distribution.
Many of us remember when lenders operated quota systems with strict policies and guidelines to decide who they lent to.
There was a time when brokers had to persuade lenders to give them agencies to conduct business.
Brokers were grateful to be able to place work with no mention of proc fees.
But distribution is different today. Brokers rely on proc fees but given mar- ket conditions it’s possible to envisage lenders not only cutting them but also the distribution partners they use.
This could have a major impact on brokers, particularly directly authorised one or two-man firms. They should consider not only the impact of slashed proc fees but also lenders withdrawing from some distribution routes.
The problems the market is witnessing, with lenders overwhelmed by demand being forced to pull their products, could be solved by removing smaller firms from the equation. If lenders know they can secure their targets simply by using bigger players, smaller firms will suffer. Distribution routes could become more compact.
Not all lenders will follow this course of action but we’re already seeing some of them set up funding tranches for different distribution channels.
Kensington Mortgages recently announced it would split its tranches equally between brokers and packagers.
So are we that far from other lenders deciding that big brokers should receive the lion’s share of their funding?
Smaller players must recognise the reality of today’s market. Big players will always be popular with lenders because of the volumes they can deliver.
For smaller firms, a cut in proc fees and lenders’ reluctance to do business with them would be catastrophic, so now’s the time for them to seek out relationships with the big boys.