The fortune of brokers has tended to follow a similarly cyclical pattern to that of the tides. Much as the sea rises and falls in metronomic fashion, so does the market share of brokers.
And while lenders had piled in to the broker market in the heady days before the financial crisis, many were equally keen to pull out again when lending began to drop off a cliff. One of the biggest examples was Royal Bank of Scotland.
So definitive was its retreat that RBS’s importance to the broker market weakened significantly. But if you were to ask any broker his opinion of the lender, both five years ago and today, his answers would probably be poles apart.
Of course, the retreat by RBS was understandable. Not only was the banking giant financially vulnerable – taxpayers had to stump up around £45bn to save it – but it was working its way through the painful process of switching its focus to retail banking and shedding billions in toxic debts.
However, although the lender spent a few years in the wilderness, its transformation has been impressive. To demonstrate how far it has come, you need only look back to last July when Mortgage Strategy ran its first quarterly feature that measured the performance of the UK’s biggest mortgage lenders over the previous three months.
NatWest Intermediary Solutions, RBS’s broker arm since 2010, came out on top and finished a highly respectable fourth in the following quarter.
While the slip down the league table may seem disappointing, it was caused by improvements from rivals. In fact, NIS’s score increased quarter-on-quarter.
Interestingly, our findings showed it scored highly in all categories, which cannot be said for most of the other lenders we reviewed. This would have been unimaginable just a few years ago.
But what of the future? Does RBS plan to continue to improve its offering and solidify its position in the broker market? It certainly looks that way. So Mortgage Strategy met up with NIS head of intermediary mortgages Graham Felstead and head of sales Mark Bullard to find out what they have in store.
Felstead, who was born in Harlow, Essex, began his working life as an engineer. Within three years he had decided he wanted an office job instead and went to work for Walthamstow Building Society as a mortgage clerk.
During his time there, the varied nature of his tasks meant that he acquired working knowledge of many aspects of the market.
“I did everything on the mortgage piece – client interviews, underwriting, through to arrears collection, which was a real eye-opener – into the deeds and legal aspects of property law. So I had a really good grounding in mortgages,” says Felstead.
In 1985 he moved to Citibank to work as an underwriter, before getting into sales and then corporate management. In 1993, when Citibank closed its mortgage operation, Felstead joined Bank of Scotland, where he spent the next five years as a regional manager.
Then, in 1999, Felstead was offered the chance to help set up a new lender with Norwich Union. “They were setting up their own lending arm so I was the sales person – there were only three of us,” he says. “They only lasted a year before they merged with Commercial Union and decided to close it down.”
Following the insurer’s decision to abandon its new lending arm, Felstead had a short stint with Martin Finegold at IF Online, which would eventually become Trigold.
“That was 15 years ago when they were talking about a common trading platform, so Martin was way ahead of his time. Unfortunately, we only had dial-up internet then so it didn’t really work,” he jokes.
While Felstead’s route into financial services was delayed due to a short stint as an engineer, Bullard joined Lloyds Bank as a management trainee straight after his A-levels in 1990. As with most trainee management schemes, Bullard experienced several roles in his early days at the bank. Eventually, he was given a branch to run.
“I had a lending mandate and part of that was at a time when Lloyds merged with TSB and they acquired Cheltenham & Gloucester within that franchise,” he says. “We were selling C&G mortgages at the time so I was qualified to do that. TSB’s managers were regulated so they could do full financial advice. I got myself involved in that so I was then a regulated branch manager.”
Bullard decided this was the path for him but there were no positions available within Lloyds at the time. So in 2000 he became ‘a man from the Pru’, selling insurance door to door.
After a year, he decided he was not suited to the role and joined HSBC as a financial adviser. Within three years, Bullard craved a more senior role and moved to First Active, part of RBS.
He has held various management roles since then and has been head of sales for NIS for the past four years.
Back in the game
After its retreat from the broker sector, RBS had a lot of ground to make up to become a force in the market once more. It has not shied away from the challenge.
Rarely a week goes by without its broker arm announcing rate cuts, new hires, service improvements or criteria changes.
Felstead insists this is the result of a shift in mind-set within the group, with mortgages once again seen as a core product.
“The thing we wanted to do as a business was be consistent,” he says. “Historically, we were in and out. That is no good for the broker, it’s no good for us, it doesn’t create momentum and it doesn’t necessarily produce the right quality of business.”
One thing the pair strive for above all is to provide a good service for brokers, which is part of the reason why they have beefed up their BDM team over the past year. The lender now has around 50 BDMs, with a fairly even split between field-based staff and those on the phone. But it is not just about numbers as both men are choosy about whom they recruit, which is reflected in the fact that the average experience of their BDMs is around 13 years.
“We have invested heavily in good people,” says Bullard. “We have had a core bunch of people who have been with us a while and have been very committed to what we are trying to do. We have been keen to ensure that we get like-minded people to complement that, whether that is BDMs, growing the phone teams or within the support structure. It is all about having the same ethos, which is: service is key; the customer is important.
“If you speak to brokers, that is what they are renowned for,” he adds. “It is no surprise to me that, individually and as a group, they are picking up awards.”
Although NIS has cut its rates regularly since the middle of last year, Felstead says service is a bigger priority than topping the best-buy tables. “We’ll compete where we can but cutting a few basis points here and there isn’t the way to earn business; it is about the longer-term relationship and giving a good service,” he says.
A major talking point over the past 18 months has been procuration fees. Many well-known industry commentators have argued that these fees should increase because it now takes brokers longer to process a case as a result of the Mortgage Market Review.
In the past year, various lenders have increased their proc fees, including NIS. It raised its residential proc fees in October. Now directly authorised firms get 3 basis points more, with the lender paying 0.35 per cent, while appointed representatives have received a 5 basis point increase, to 0.4 per cent.
A year earlier, the lender loosened its rental calculation requirements and raised its buy-to-let proc fees from 0.35 per cent to 0.45 per cent.
“You have got to recognise what the broker does,” says Felstead. “And without a doubt, there is more work for them to do. But likewise, there is only so far you can go; there are economics involved. We recognise that with our increase, although we realise we were just catching up with some areas of the market.
“It is a watching brief [whether we decide to increase our proc fees further], so we will see what the rest of the market does.”
Felstead is sure, however, that NIS will not start paying proc fees based on business quality, as rivals Halifax and Santander have done. “We are not going down the quality route,” he says. “It is one of those things we have worked hard on with our BDMs, so even when we weren’t hugely in the market, the one thing we wanted to make sure of was that we were getting quality business, educating the brokers on what we wanted and how to present cases to us. That paid dividends.”
Looking to the future
So what plans do they have for 2015? RBS and NIS pulled out of interest-only lending more than two years ago but Felstead concedes they are eyeing a return, although the offering is likely to be targeted at those with higher incomes.
“We recognise internally that there is a place for [interest-only]; we have just got to find that place and what the market looks like,” he says. “But we have to be right under the conduct risk piece of ‘Is it right for the customer?’ and ‘How do we ensure they can pay their mortgage off in 10, 15 or 20 years?’”
Adding an interest-only option is seen as a way of enhancing RBS’s large-loans offering, which was launched as a pilot a year ago.
“We launched a pilot for some of the larger London brokerages mainly, just to test a system,” says Felstead. “They had direct access to senior underwriters within the large-loans team to have those complex discussions about typical customers at the high end. That has been received really well.
“The challenge has been that we haven’t got interest-only. We know that is the sort of customer base we want to look at. We are very good at underwriting and having those conversations with brokers but the block at the moment is that we will only do capital and interest. That’s a big driver for us.”
The duo also want to look at the lender’s buy-to-let offering this year. Bullard says: “This is about concentrating on the right type of customer to acquire some really good business. The challenge we have is: where do we take it now?”
In November 2013, the lender reduced its rental cover requirements, meaning the rent required to cover mortgage payments is lower. While Felstead says this move was well received, he believes the lender should look to loosen its criteria in certain areas to open up to more experienced landlords.
One of these areas is the number of buy-to-let mortgages a landlord has. Presently, NIS will accept only customers with four or fewer mortgages but Felstead is mulling whether to increase this.
“We aim very much at the amateur landlord so the next thing we are discussing is whether we should look at the section of the market where they do this regularly,” he says. “We don’t want to be where the person has 40 or 50 properties but more like 10 or so. It’s just a question of whether we have an appetite for it.”
As firm believers in providing good service, Felstead and Bullard want to make it easier to transact with the lender. They plan to invest further in their BDM team over the coming year and will look to make case-processing easier by mechanising parts of the transaction and improving Live Talk, the lender’s live-chat service.
“It is very much about investing in our BDM support function; it is looking at Livetalk, which is well and truly loved by brokers. Can we enhance that? That is one thing we are looking at.”
“We recognise we have got things like case-tracking to come, scan and upload and, ultimately, a new website,” he adds.
The Council of Mortgage Lenders predicts the mortgage market will grow to around £222bn this year and £240bn in 2016. Moreover, most of the industry believes brokers will make up the lion’s share of this business.
RBS plans to increase its own lending this year. Felstead says: “The group is looking for about a 10 per cent [market share], which would be similar in the intermediary space. If you look at RBS as a retail bank, it wants to be multi-channel in terms of big branch networks, telephone operations, digital online and intermediary. But there is now an acceptance that mortgages are a core part of the group and [we expect brokers to account for between] 50 and 60 per cent of that.”
So if the CML is correct and lenders advance £222bn in 2015, the group will lend around £20bn this year, of which at least £10bn is likely to go through brokers. This would be a marked improvement on recent years, after the group lent £16.2bn in 2011, £14bn in 2012 and £14.3bn in 2013. The latest figures for 2014 show the group had already lent £15.1bn at the end of Q3.
Here to stay
After a few years in the wilderness, RBS is showing signs that it means business. Bullard says: “We don’t plan to stand still: expect more growth and more change, in a positive way for the customer.”
Felstead is equally bullish, and keen to stress that the ‘in-out’ approach for which NIS had become known in recent years is a thing of the past.
“The message we want to get across to the intermediary market is we are here to stay and we’re consistent,” he says. “RBS is comfortable with that, which has been a challenge in the past. We want to be seen as an important part of mortgage growth within the group.
“We have got to keep demonstrating that to brokers so that, hopefully, what went on many years ago will fade in the memory.”
For many brokers, it seems it already has.