The big guns of BMS having made their position clear by withdrawing the KFI facility from sourcing systems, others will surely follow. But most things move in cycles and I believe brokers could look at going back to how things were done in the good old days. Specifically, dealing more with building societies could lead to mutual benefits.
A building society is run in the interests of its members and is not listed on the stock market or owned externally. The advantage of this is that it does not have to pay dividends to shareholders. The surplus or profit made by a building society can be put back into the organisation to improve service and to benefit members with lower rates for borrowers. The additional money can also contribute toward lowering running costs.
Building societies consistently offer attractive products and dominate best buy tables. Moneyfacts carries out a half-yearly survey of mortgage interest charged by its Ttop 35 mortgage lenders. A look at the latest survey shows that HSBC is the only high street bank to appear in the top 20 with the mutuals maintaining their dominance, taking 13 of the top 20 positions.
Impressive, but are there other benefits to be gained by dealing with mutuals?
Rachel Blackmore, external affairs manager at the Building Societies Association (and columnist in Mortgage Strategy) says: “A phrase we often use is 'keeping the banks honest'. By challenging the plcs on pricing and service, building societies and mutual life companies provide a competitive pressure that would not otherwise be there.”
And Steve Blore, senior manager external affairs at Nationwide tells me: “In order to meet shareholder demand for dividends banks have to focus on maximising profit and a significant proportion of this profit comes from customers. A building society is much more likely to offer its customers – including those that are also clients of intermediaries -better value.
'Unlike most lenders, all Nationwide's products are available to all customers. An existing customer of a bank who wants to remortgage and stay with that lender may find that the best deals that bank offers are not available to them but only to new business. Another cost-saving advantage for intermediaries' clients is that Nationwide does not charge MIG.”
Many mutuals have a customer loyalty discount bonus which they say gives a real reduction in base rates after a period of time. The qualifying period varies between societies.
Paul Marland, head of intermediary mortgage sales at the West Brom says: “We pay a loyalty discount which currently stands at 0.75% off the standard variable rate to borrowers who have held a mortgage for five years or more. This means borrowers are paying one of the lowest variable rates available from any lender. We are an intermediary-focussed lender with the growth of our broker business representing 66% of our mortgage throughput, compared with 34% direct. Our success in the mortgage market has been built on intermediary and client service as well as competitive interest rates.”
In my experience, building societies have smaller and less complicated organisational structures than banks and tend to have a greater ability to respond to market change. This flexibility can lead to building societies being quicker to market with products and criteria changes.
Although big can be beautiful most building societies are smaller than banks and have a lower number of distribution channels. This can result in more of a specialist focus on intermediaries compared with banks, which enables building societies to cultivate close relationships with brokers and develop expertise in the intermediary market. At the sharp end this close relationship can mean the difference between getting a case through when the criteria is other than the norm and not. Building a rapport usually has benefits and with brokers it can lead to less frustration when processing difficult or unusual cases.
Although the carpetbaggers have long gone there is little doubt that demutualising has led to consumers having to pay for their windfalls of yesteryear. Once again it is a case of people with a short-term mentality having to pay more in the long term. Just make sure your clients are not paying over the odds in order to satisfy shareholders. Make it a case of mutual benefit for you and your client.