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Broker cull will restore natural order

A recent poll carried out by Mortgage Strategy reveals that 32% of brokers are unlikely to renew their Financial Services Authority permissions this year. This should not come as a surprise – it’s simply the natural order of things.

With less business to be done, the need for brokers has diminished. Indeed, if you look at the numbers it has long been apparent that there would have to be a cull of brokers sooner or later as the downturn gained momentum. Lending volumes are down by two-thirds and the share of mortgage transactions completed by intermediaries as opposed to direct with lenders has fallen from a peak of around 75% to 50%. It is therefore inevitable that many brokers will not survive.

In the past decade we saw a boom in lending, peaking at more than 360bn in 2007. As a result, an increasing number of brokers came into the market, many with little more than an industry qualification to their name and subscription to a mortgage sourcing system.

A large number of these were fulfilling a genuine need by taking orders in a market in which there was more than enough business to go round.

This concept of inevitability seems to have been missed by many in government and some in the private sector too, given the current crop of bailout requests. I have no idea why the government is even contemplating a rescue package for the likes of the car industry. Aside from the loss of a significant number of jobs there is no justification for artificially supporting most firms in the private sector.

I’d have thought Labour would have learnt that lesson when it gave funding to MG Rover to try and prop it up. The car industry – as with most business sectors – can’t be compared with banks and the support being offered to them but it seems that is what’s happening.

Banks are a fundamental part of our financial infrastructure and the steps the government has taken to stabilise them are appropriate. But to apply a similar template to the private commercial sector which has seen a significant reduction in sales as a result of the economic downturn is nonsense.

These businesses should do what every other company in the country has had to do in the face of the credit crunch and look at changing their models to survive. Asking for government loans to see them through is simply deferring the inevitable and will only serve to waste taxpayers’ money.

Sweetening this request with promises to develop greener alternatives is disingenuous. These companies should have already been doing this instead of continuing to reap profits with no thought of the future.

So what we are seeing in broking is the natural order being restored as many order-takers leave the market because they don’t have the necessary experience or sales skills to survive in a challenging market.

We should not look at the results of the survey as yet another indicator of the severity of the recession we are living through but as a commercially inevitable outcome of the boom and bust cycle.


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