Product ideas must start with clients

Residential lending is heading into choppy waters. For this reason, lenders that want sensible, risk-adjusted returns should be thoughtful in their approach.

In-depth analysis and discussion with brokers will support sustained growth and profitability. Above average returns require a more cerebral approach than is in evidence in the present lending market.

Many lenders appear to consider the market to be homogeneous. Clearly, there is some ack-nowledgement of segmentation – first-time buyers, buy-to-let and home movers – but it sometimes appears there is not much thought given to the subject beyond that.

BDMs and their colleagues visit us, as they do all brokers. The purpose of this is to build relationships, explain new products and work with brokers so they can understand lenders’ business processes and underwriting criteria, thereby developing more business.

But what surprises me is that few of them come to talk about our clients. It’s as if they imagine all buy-to-let clients are the same, that they have the same characteristics, demographics, approaches to risk and levels of experience, understanding and entrepreneurial ability.

Last week, we had a visit from a representative of a well known sub-prime lender to discuss its new product suite. Something that surprised our team was the lender’s expectation that its speciality was also ours – that our clients were sub-prime too.

We wondered what had led it to this conclusion. We have been doing business with the lender concerned for over a year and imagined it had a better understanding of our business model and client base.

Product development should start with customers. In the absence of customer research, surely brokers with lots of clients are the next best place to gather data.

In my experience, only a handful of lenders start their product analysis with direct or indirect customer research.