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More base rate cuts will achieve little

The recent announcement by Northern Rock that it intends to return more actively to the lending market is likely to be widely welcomed, particularly by the broker community where it has historically distributed the majority of its funds.

Northern Rock has been highly effective in repaying its government loan – some 18bn of the 27bn has already been repaid and the government has recognised that every pound to be repaid was effectively money taken out of the lending arena, thereby reducing liquidity.

Northern Rock is expected to lend some 14bn over the next two years – 5bn in 2009 and 9bn in 2010.

And more positive news emerged with the announcement by the Royal Bank of Scotland that it will commit to lending a further 25bn in 2009, with up to 9bn of this being for mortgages.

This is in addition to its original 2009 plans and is a requirement of RBS being able to insure in excess of 300bn of loans and investments against future losses.

Both initiatives seem to augur well for the mortgage market although it remains to be seen what proportion of funds will be distributed via brokers and what will be channelled via lenders’ retail branches.

Nevertheless, an increase of some 14bn in funds from the two organisations represents a near-10% boost to the expected gross mortgage market level of 145bn in 2009. Following the impact of the credit crunch and the subsequent recession it can be seen that the lenders facing the greatest challenges – and also the ones that found themselves especially vulnerable – are those that were over-reliant on one type of funding.

On the flip side, the more successful financial institutions are those that took a diverse and balanced approach to funding, giving them a more stable passage through troubled economic waters.

The same principle of balanced business planning can be applied to mortgage brokers.

At the moment many brokers are experiencing problems due to over-dependence on one type of client or product.

Diversification can provide a solution. By exploring fresh options brokers can both branch out into alternative sectors and strengthen their income streams.

A key factor in this process is marketing communication, and equity release provides a prime example.

Many clients are likely to have older relatives who require different product types. Advisers will often find that the parents of clients with equity release plans have gone direct to providers and not considered speaking to an IFA.

Involving all family members in equity release decisions is important and dialogue can be vital in allowing brokers to branch out into areas they have previously left unexplored.

Such diversification strategies are important in the present economic climate.


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