When interviewing Mark Lofthouse, chief executive officer of Mortgage Brain, at the company’s headquarters in Bromsgrove, Worcestershire, you can’t help but be struck by the fact that his office is covered in pictures charting his success as a mountaineer.
He’s climbed the peaks of Scarfell Pike in Cumbria and Mount Kilimanjaro – which is apt as when it comes to uphill struggles, Lofthouse and Mortgage Brain certainly faced one last year with the firm’s battle to acquire its arch rival TrigoldCrystal.
The close relationship between the two firms has previously been the subject of much press speculation. They have been married off numerous times over the past 10 years in the financial trade press. But in December 2010 they confirmed the rumours and Mortgage Brain revealed it was in discussions with the board of TrigoldCrystal to buy it for £6.8m.
So was it the 2007 credit crisis that finally forced TrigoldCrystal’s hand in marriage?
“The combined revenues of Mortgage Brain and TrigoldCrystal had both contracted,” says Lofthouse. “Mortgage Brain customers were more mainstream and didn’t specialise in adverse markets, whereas TrigoldCrystal had a large specialism in the adverse market – so accordingly we didn’t see the same decline.”
Following a shock engagement it looked like the union was a done deal, but in March 2011 the Office of Fair Trading referred the acquisition to the Competition Commission, making it too expensive for Mortgage Brain to pursue – the planned acquisition had already cost it £418,000.
The OFT believed the merger had the potential to significantly lessen competition in the mortgage sourcing market.
“There was always the risk the OFT might say no on the basis that competition would be reduced, even though both firms are small in OFT terms,” says Lofthouse. “Our belief was that putting the two together would have driven costs out of the business and enabled us to deliver more to brokers – but we are where we are.”
It must have seemed like history repeating itself when earlier this year the OFT said it was going to investigate Mortgage Brain’s planned acquisition of point-of-sale system MortgageStream, which it later approved.
“We didn’t have any fears the OFT would go the same way as TrigoldCrystal,” says Lofthouse. “The combined market share of ourselves and MortgageStream is in the region of 14%. Obviously you never know whether it is going to go through or not, but we were always hopeful.”
With or without TrigoldCrystal, there’s no denying that Mortgage Brain now plays a dominant role in the mortgage sourcing market.
When Peter Nice, one of the founders of Mortgage Brain, built a sourcing system for his estate agent wife 25 years ago, he couldn’t have imagined it would go on to be used by thousands of brokers.
Mortgage Brain celebrates its 25th birthday this month and its founders have much to be proud of. Despite the costly trials and tribulations of last year, the firm still increased its turnover by 4% in the year to March 2011 to reach £6.1m – no easy task in a market with dwindling broker numbers.
Lofthouse has been the driving force behind the technology firm for the past 10 years. He joined Mortgage Brain in 2002 from Assureweb to head the firm when its founders Nice, Mike Green and Barry Louvel sold it to a consortium of lenders in 2001.
The company was bought by Nationwide, Halifax and Alliance & Leicester for around £4.8m in May 2001, with additional shareholders – the Royal Bank of Scotland, Northern Rock and Barclays – coming on board in December 2001.
The company still has six owners, though some are under a slightly different guise, with A&L becoming Santander and Halifax now subsumed within Lloyds Banking Group.
Lofthouse joined shortly after the lenders bought their stakes. His remit was to make the firm the best provider of technology to mortgage brokers and to establish a common trading platform. The task has been no mean feat by any stretch of the imagination.
From Daz to mortgages
Having studied chemical engineering at the University of Manchester, Lofthouse is not an obvious candidate for a career in the mortgage market.
“After I completed my degree I got a job at Procter & Gamble,” he says. “I was making 35 tons of soap powder an hour, so I learnt all about Daz, Ariel and Bold. I essentially learnt that chemical engineering is about the management of people and projects.”
His time at the company also taught him the importance of a good sales and marketing strategy.
“It became obvious to me that companies are led by their sales and marketing strategies rather than their manufacturing capabilities,” he says.
When he graduated in 1982 the technological world was just taking off in the UK, and computers and the worldwide web still hadn’t found their way into the working lives of many. Lofthouse, however, decided that it was this world that he wanted to become part of. After leaving Procter & Gamble he took a year’s sabbatical where he travelled from London to Johannesburg.
On his return in 1990 he took a job selling insurance systems in a Cumbrian firm, which went on to become ACT Financial Systems.
“I wanted to get into technology, which was developing at a fast pace,” he says.
I’m hoping in the future the market will see us as a successful company that has continued to grow from where we are now
Being in Cumbria also allowed him to indulge in his other passion – Carlisle United.
“Between the ages of seven and 11, I used to go to every home game,” he adds.
But his love for Carlisle United was not enough to keep him in Cumbria and in 1998 he joined Assureweb in Cheltenham, where he built its portal for financial advisers. This led to being offered the job at Mortgage Brain, having shown he had a flair for technology.
When he joined Mortgage Brain it had a turnover of about £2m and only carried out mortgage sourcing. It was the era of paper applications for brokers, but the lenders that had bought into Mortgage Brain were keen to bring the market up to speed and wanted Lofthouse to develop a trading exchange where brokers could submit their applications online.
“Mortgage Brain was a one-product company that had done well, but it needed to be taken to the next level,” he says.
It launched the Mortgage Trading Exchange in 2003 and today around 20% of mortgage applications from brokers are carried out through it.
The firm’s next milestone was when it bought point-of-sale system The Key in 2006, which was developed by Trigold sourcing system founder Peter Heigho.
Lofthouse claims it was in a fledgling state, with just a handful of customers and in need of substantial investment.
“We made the necessary investment at the time and have continued to do so,” he says. “It is now well established with networks and brokers.”
Other providers had launched point-of-sale systems ready for Mortgage Day in October 2004 when the Financial Services Authority first regulated the mortgage industry.
“There were systems that were built before Mortgage Day which typically tried to cover compliance – they were the first wave of systems,” says Lofthouse.
“The Key was the first system of its kind where it was all about point-of-sale and broker efficiency as well as all the compliance requirements. We knew what the reality of regulation was, whereas any systems built prior to Mortgage Day were only what people thought the compliance regime would be.”
The MTE now has 6,000 contracted users and 3,700 active users.
Back on track
Prior to the credit crunch in 2008, Mortgage Brain looked invincible, but it was obviously affected like everyone else.
“Revenues in the mortgage market dropped by 60% from where they were in their peak,” says Lofthouse. “We downsized and our revenues dropped 15%. But revenue has grown by 4% in the year to March 2011 and we’re forecasting an increase of between 10% and 20% in the next two years.”
Lofthouse puts the increase down to more people adopting The Key and the new version of Mortgage Brain’s sourcing system, which launched in 2010.
Another area where the firm expects growth in the coming year is its mobile phone technology, specifically a mortgage application for consumers.
Some brokers heavily criticised Mortgage Brain in 2010 when they mistakenly thought the firm was branching out into a mortgage search facility for consumers. What Mortgage Brain was actually doing was providing a white-labelled search facility on brokers’ websites that allowed consumers to search for a mortgage and then link to the broker hosting the search facility to provide advice on the mortgage. The mortgage app follows a similar vein.
It is free of charge for consumers and leads obtained are passed on to brokers, also free of charge. The app’s features include mortgage and broker search facilities, and mortgage calculators.
“I haven’t got a clue how many leads it will create for brokers but we look at it as the Yellow Pages for brokers,” says Lofthouse.
“There are few if any mortgage sourcing systems for mobile devices and there certainly isn’t any that has the facility to find a broker. What we are doing is a big advertisement for every broker in the country.”
He expects to launch the app later this month, initially on the iPhone and then on Android phones and iPads a few months later.
The app is just one thing the firm is working on to make sure it stays ahead of its competitors, one of which is located in the office next to Mortgage Brain – TrigoldCrystal.
“We were the first people on the business park in Bromsgrove eight years ago,” says Lofthouse. “Crystal – which was acquired by Trigold in 2009 – moved in two or three years after us, then it merged with Trigold and we became neighbours.”
There does not seem to be any animosity, with Lofthouse regularly enjoying a drink with TrigoldCrystal joint chief executive officer Jon Whitmore.
But he says he has resisted the urge to hold a glass up to the windows of his nearest and dearest rival.
“There is always rivalry, but we get on well,” he insists. ” I have had meetings in TrigoldCrystal’s offices and it has had meetings in ours. I’ve never snuck into its office, but we think we are leading the market.”
Mortgage Brain’s troubles with the OFT have not thwarted its appetite for more acquisitions.
“We are continuing to look to grow our business both naturally and through acquisitions,” says Lofthouse. “Where an acquisition complements what we do we would consider it.”
One thing that the OFT investigation forced both Mortgage Brain and TrigoldCrystal to do was to reveal their user numbers.
“The submissions we made to the OFT about our sourcing numbers were made 18 months ago,” says Lofthouse. “They showed that TrigoldCrystal had a 50% to 60% share of the mortgage sourcing market. Since then Mortgage Intelligence and Mortgage Next have both moved to Mortgage Brain and lots of other smaller brokers.
“Our market share is increasing and has increased by about 8% in the past 12 months,” he says.
But it is not only TrigoldCrystal trying to grab some of its market share back, there is new entrant Client Data Systems, headed by Heigho. CDS recently launched a standalone version of its sourcing system The Core, one of the highlights being the speed at which it can upload product changes on to its system.
But Lofthouse seems unconcerned about the new rival.
“We get product data in advance of release and over 90% of requests are on the systems within four hours, and 100% within eight hours – I would defy anybody to beat that,” he says. “We will see how it goes, it’s always easy to talk the talk.”
Some good news at least on the competition front came earlier this year when potential competitor Google scrapped its plans to launch a UK mortgage comparison service after closing its US version. The internet giant had planned to launch a comparison site similar to Moneysupermarket.com, which inevitably would have put pressure on the business models of brokers.
“Presumably the purpose of doing a pilot was to see what that market was like and whether it would fulfil its aspirations,” says Lofthouse.
“It suspended that pilot so I guess it fell short of expectations and aspirations.”
When asked if Mortgage Brain has ever been tempted to supply a consumer-facing brand with its sourcing capabilities, Lofthouse says it is not something on its radar.
“We would review it on a case by case basis but the market we are going for is to support brokers, so brokers themselves have the sourcing capability on their websites,” he says.
One way that the technology provider tries to instil confidence in the broker market is by releasing its monthly product numbers. Its latest data showed the number of available products on its site increased by 87% in December 2011, compared to December 2010.
“At the height of the market there were 37,000 products on our system, that went down to 2,400 and is now in excess of 10,000,” says Lofthouse.
But he admits that it is not always the most accurate indicator of what is happening in the market.
“The fact there are more products has to be good for brokers – but another indicator would be the number of products that have an LTV of 80% or greater and that is increasing,” he says.
So what does the future hold for Mortgage Brain and Lofthouse?
“If you asked me this five years ago I don’t think anybody would have predicted the answer correctly,” says Lofthouse, alluding to the downturn in 2008.
“Having said that, in the past two years our revenue has grown and we are committed to investment and innovation.
“I’m hoping in the future the market will see us as a successful company that has continued to grow from where we are now,” he adds.
He has been CEO of Mortgage Brain for longer than he has held any other role, so is he getting itchy feet?
“I just love working here,” he says. “I love what I do, as do my team of people and everybody who works here. There are always going to be challenges in the market and change and innovation – but it is also exciting – even in the bad times.
“It is in the bad times that you find out the true mettle of a company and everybody here has pulled through the bad times. It has been a combination of hard work and fun.”
But if Mortgage Brain wants to survive the next 25 years, clearly its survival is as much reliant on its own investment and innovation as it is a buoyant broker market.
Mark Lofthouse CV
Born: 1961: Skipton, Yorkshire
Education: University of Manchester Institute of Science of Technology, BSc Hons, chemical engineering
1990-1996: Associate director, ACT Financial Systems
1996-1998: Sales director, Apricot Computers
1998-2002: Managing director, Assureweb 2002-present: Chief executive officer, Mortgage Brain
Hobbies: I am a passionate supporter of Carlisle United which has given me pleasure and pain in equal measure over the years. I watch tennis, am a fan of motor sport and a self-taught foodie and vinophile. I am also keen on travel and challenges, and successfully climbed Kilimanjaro in 2008 – before the celebrities.
Favourite book: Gorky Park by Martin Cruz Smith
Favourite film: Lots of favourites like the Indiana Jones series, The Great Escape and more recently The King’s Speech.