At that time, Malone’s mortgage club was reputedly responsible for 10% of all intermediary introduced mortgage business. “At 57, Malone has a lot to reflect on,” I wrote. “He’s spent all of his working life connected to the mortgage and property market in one way, shape or form.
“Although Malone insists the club’s success has been built on a team effort, industry pundits credit its impressive achievement in capturing such a large market share to Malone and his undying drive and determination to make it a success.”
I also have to confess, it was me that christened him as the industry Godfather.
But love him or loathe him, there is no denying that Malone has stood the test of time. “Malone is an industry stalwart. His depth of knowledge is unsurpassed and he is a pioneer in the market,” says Lloyds Banking Group’s sales director for mortgages, Nigel Stockton.
“Don’t be fooled by his friendly and informal manner,” adds Checkmate Mortgages’ chief executive Stephen Knight. “He is a market expert par excellence. He has vision and insight I hope we all benefit from for years to come.”
Since that interview in 2000 there have been many changes. In 2002, Scottish Amicable was bought by Prudential. And then in 2004 PMS was sold by the Pru and bought by Bankhall, which is owned by Skandia and is part of the Old Mutual Group of Companies.
Malone is now 65 – there have been lots of rumours that he would retire or be replaced but he remains firmly at the helm.
Rather than standing for Premier Mortgage Service, the brand is now just PMS and if you had to spell it out, Malone would rather it stood for Protection Mortgages & Savings.
These are all big changes, but what hasn’t changed is PMS’ dominance in the UK mortgage market. Malone, along with Martin Reynolds, development director at PMS, and Lisa Martin, director of operations at PMS, his grip on the market remains secure.
In 2000, PMS was on track to achieve more than £10bn in mortgage applications and £8bn in mortgage completions, which was a sizable chunk of the market.
In 2007, its completed business, plus retentions, was £42bn and even with the market downturn it estimates that its completed business for 2008 will be just over £25bn and £27bn including retentions. Since its inception in 1996 in total it has distributed over £200bn worth of mortgages.
All of which means that despite the mortgage market falling off a cliff in 2008, PMS still maintained an impressive 18% to 19% share of the intermediary market.
Which isn’t to say that the last year has been easy. Like many firms in the market, the Council of Mortgage Lenders’ prediction in December 2008 that gross lending in 2009 could potentially be only £145bn was a turning point. “We felt as a business we had to take recognition of that,” he says.
“We’d already completed budgeting forecasts for business around the £220bn mark, the £200bn mark and then the £180bn mark, so when you suddenly drop to £145bn, when you consider it was at £345bn in 2007, you really have to look at your business model.”
Despite the negativity currently in the marketplace and the lack of confidence seen particularly in the broker sector, Malone remains positive about lending in 2009.
Why is that? The simple answer is that he believes there will be more lending than the CML is currently predicting.
“To look at this year I’m probably now erring away from a £150bn market and certainly to a £180bn market,” he says.
With some of the recent announcements from the government he says there could be potential for the market to hit £200bn. That is a big difference compared with the CML’s prediction of £145bn. But when it comes to predicting the market Malone has got form. “If you were to look at last year, I was probably one of the only people who called it right at about the £250bn mark,” he says.
“I did say to the marketplace we’ll be down for 2008 £100bn on the previous year and we were.”
He’s also been encouraged by discussions with Northern Rock, Royal Bank of Scotland, Alliance & Leicester, Abbey and Lloyds Banking Group. “There are some encouraging signs out there for the intermediary and obviously potentially for the borrower.”
The confidence is also borne of the fact that he sees a key role for PMS going forward and that it will retain its dominant position in the market. “We certainly see our market share increasing because we see less facilitators operating in the market,” says Malone.
“We’ve already had major discussions with all of the key lenders. Whether it’s the Lloyds Banking Group, Woolwich, Abbey, Nationwide, RBS and many other of the key lenders that we work through, we know that they want to operate within a much narrower panel of facilitators – whether that is a network or a mortgage club like ourselves.”
PMS is trying to move away from the word ‘club’ and wants the perception of being more a facilitator of intermediary business – a key reason for dropping the brand Premier Mortgage Services. “We’re trying to move away from just being seen as a mortgage facilitator to being much stronger in protection, general insurance and savings,” he says.
“P stands for Protection, M stands for Mortgages and S stands for Savings – you could say that the genius that created PMS 12-13 years ago had an idea that this day was coming.”
As a result of PMS’ market share and parentage, despite the market downturn, he says that as a distributor it’s in a strong position to weather the current storm.
“Yes we’re owned by a bank-based company but because we’re so far removed it allows us to be more fleet-footed and do things in the market that some of the others can’t do because it cuts across what their parent does,” he says.
“Old Mutual is not in the protection market, it is not in the GI market, and it is not affiliated or associated, so we can develop much greater relationships with general insurance product providers.”
But despite his confidence about the final tally for lending in 2009, he’s realistic about the scope for those products from which the brand once derived a large chunk of its revenue.
“There’ll be even less in the buy-to-let sector, there was no funding really in the self-cert or sub-prime, and loan sizes are going to go down.” (PMS’s average loan has gone down from £153,000 to somewhere in the £140,000s.)
“The real issue now is about LTV’s,” he adds. “If we’re still going to be around the 70% to 75% mark, and if none of this new funding will help it get above 85% to 90% then more will suffer.”
Savings is an even newer territory for PMS and relationships have been brokered, whereby monies generated for certain organisations will be redistributed in the form of lending via PMS.
“We’re looking to put systems in place which will allow us to decide which brokers get access to lenders’ funds, on the basis that they have to be supportive in a way that they can ensure that they are helping themselves.”
From the lenders’ view, it’s an equal exchange of services – you scratch our back and we’ll scratch yours. “It’s no longer a one-way ticket,” says Malone. “A lender has to get support from the intermediary, it’s not just how to borrow his money but also how to find deposits to enable them to get to that borrowing.” It’s almost a flashback to the 1970s and early 1980s where the only way to borrow money was to save.
“I’m afraid that will probably be part and parcel of this mortgage market in the coming 12 months,” he says.
That’s where he sees directly authorised brokers as being in a positive situation. Without the restriction of being tied to certain panels, Malone argues that DAs have the freedom to choose where they place business which will bring them not just immediate rewards but also long-term value.
“If you’re an AR, unless your network has got the right panel, you could find that it eventually restricts access to exclusive products. “What we’ll start to see is brokers going back to their client bank and encourage savings.
“Where, say, they’re a second or third-time buyer and they’ve saved money on a tracker, clients are going to have to start putting that money back into a savings proposition.” First-time buyers are going to have save for bigger deposits too.
“FTBs are going to have to put away a few hundred quid a month over a period of time, whether it’s six, 12 or 18 months, to guarantee a mortgage going forward.”I see all the major high-street lenders doing that and in some ways that may be the way borrowers get a slightly higher LTV, maybe about 90% to 95% LTV, if they make the commitment to put money in.
“The feast of lending has now become a famine, and if it’s a famine you have to show resistance and what I call ‘ways to try to endear yourself’ to the lender. I think that’s going to be one of the ways that you help yourself and help your client.”
As ever, personal relationships are at the heart of the PMS proposition – both with lenders and with intermediaries too – and a series of small nationwide roadshows are already under way. “The more you do, the more you actually get to talk to the people, not talk at the people,” says Malone.
“You get to interact with them, discuss with them their specific needs in an open forum with lenders, product providers and understand the issues. There are still a lot of different regional issues. Certain parts of the country aren’t suffering as badly as perhaps central London.”
He says it’s a case of listening to these different voices, understanding their needs and communicating this to lenders. If lenders understand what brokers in the regions are crying out for then that helps lenders to design products or look at different things that are not centric to the South-East of England all the time. And with the added element of protection of savings, for the first time the roadshows aren’t all about mortgages either.
One of the things Malone is horrified by is the number of couples that buy a house together and take out joint life policies. “They should take out single life policies. They should never take out a joint life policy because our way of life doesn’t allow joint life policies with the number of divorces and separations that occur daily. Plus, if you keep your own policy you can keep control of the financial situation. It’s that type of education we’re doing.”
The big push now is to help brokers sell protection, particularly in London where the large volume of mortgage inquiries many brokers dealt with rendered protection irrelevant. The net result has been that many don’t have the skills to sell protection. Malone wants to change this and is looking to help them sell protection properly.
“We’ve started that process with some well-known brokers who haven’t sold a protection policy in the last five years,” he says. “It’s bizarre when you consider some of our biggest firms who are quoted daily, have not sold a protection policy. Yet they have clients that are taking out £500,000, £1m, £2m mortgages. I find it quite distressing.”
It’s clear the mortgage and lending landscape will change significantly over the coming months and Malone says more market consolidation, particularly among networks, is inevitable.
“We will see a number of major firms joining forces to survive,” he says. “We all know that running a network costs money. If the number of transactions is going down, income is going down as well. “The income you derive from a prime product on a £150,000 average loan is £15. You have to do a hell of a lot of those to be able to pay for all those bodies within the network.”
There has been much speculation that the downturn will force the 7,000 or so directly authorised brokers still in the market into the waiting arms of the networks out there. But Reynolds, Malone’s right-hand man, contends that this is just a smoke screen created by networks that want additional members.
“It comes back to a number of things – why do you want to be DA? Why do you want to be an appointed representative?” he says. “I’m not saying there’s anything wrong with being AR, that’s a broker’s choice, and that is fine. But people are saying it’s now the only option and the only people saying that are the networks.
“If you’re part of a network you follow their regime. I’m not saying it’s wrong but it could be more onerous than it needs to be. Again you don’t always have the panels that you want to have, you don’t have the choice.
“You don’t sail your own ship in some respects because you are told what to do within a framework. Plus you’re taking on costs of the network, the liabilities of ex-members, new members, and it is shared across the whole network.”
Malone believes the cost of running a network and the liabilities associated with it will become unpalatable. “Be under no illusions – do you see Lloyds Banking Group, RBS, HSBC or Barclays putting the money in to make sure these networks survive?” he says.
By contrast, with low-running costs and still turning a profit, albeit smaller than in its heyday, PMS doesn’t face the same restrictions. Indeed, its flexibility and willingness to change and adapt to new market conditions is something that has kept PMS at the forefront of the mortgage intermediary market.
It’s a dominant position that will keep PMS, and Malone, at the top of the pile for many years to come.