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Profile: L&G Mortgage Club – Ace of clubs?

Jeremy Duncombe and Stephen Smith (with glasses), Legal & General, London.

In its never-ending quest to add value for brokers and lenders, L&G Mortgage Club works closely with both parties and is keen to embrace new sectors

It has been a busy year for Legal & General Mortgage Club. In April, one of the best-known names in the industry decided to wind down its appointed representative network and focus solely on the club.

At the time, director Jeremy Duncombe told Mortgage Strategy that the motivation for the move was “to bring the network into an exciting new era by gradually evolving the business into a new partnership”. ARs had the option to either join other networks or become directly authorised.

Fast-forward seven months and Duncombe says everything went “very much according to plan” and the firm is “pretty confident” that the club will achieve its goal of £50bn-worth of mortgage completions by year-end.

But things have not always run so smoothly. Director of housing partnerships Stephen Smith, who has been with L&G since before the club was founded 21 years ago, and has worked in the mortgage industry for more than 35, says the business took a hit – as most did – during the last recession.

“We began in 1995 with £1bn of completions for the year,” he says. “By 2007 we were at £23bn and then in 2008 that dropped to £17bn; and we were at £11.6bn by 2010.”

Last year, however, the club surpassed its target of £44bn of mortgage completions, reaching a total of £47bn.

“So we have come a long way,” adds Smith.

One in five of all UK mortgages are arranged by an adviser using L&G Mortgage Club, equivalent to one in three of all intermediated sales. There are currently 63 lenders on L&G’s books.

“When the club started, only some lenders were paying us procuration fees. But what we were doing was enabling our estate agency business partners to get mortgages for their customers and it provided an opportunity to give people advice about protection insurance and buildings and contents cover. So there were insurance sales coming out of it as well,” says Smith.

“More rapidly after 1995, lenders started to pay proc fees and that’s really when the club movement started to take off.”

Source of attraction

However, proc fees are not the main source of L&G’s attraction to brokers.

“The fees are pretty consistent across the market,” says Duncombe, “but we add value into lenders and brokers.

“From a broker point of view, the attraction is education, good proc fees, exclusive products, pilots and support for business growth.

“The main thing at the moment is how they future-proof their business by not concentrating purely on the mortgage. They need to look at additional areas, be that second charge, buy-to-let, new-build, conveyancing, later-life lending, etcetera.”

For lenders, access to brokers and good-quality business is the main selling point, says Duncombe.

Smith expands on the appeal of the club based on its impact on the recovery of buy-to-let volumes post crash.

“Levels had dropped to about a quarter of their peak after the crash, and a lot of brokers got out of the market and concentrated on mainstream,” he says.

“We recognised that there were lenders that wanted to come back into BTL but the brokers needed reminding how to do that business. So, with a number of lenders, we set up a series of workshops that enabled them to get in front of the brokers most likely to participate again to re-educate them on how to do BTL business.

“We followed up that growth and now we probably do about 20 per cent of our business in BTL.”


L&G has also promoted the new-build market. More than three years ago it began an initiative to boost availability of products, which were dominated by two lenders: Halifax and Nationwide.

“We built a panel of lenders, encouraging them to change their criteria and processes to become more new-build friendly, and we also put together a panel of brokers who specialised in that market. So our new-build proposition is very good,” says Smith.

“As is our relationship with builders and housing associations,” adds Duncombe, “and we’re looking at areas other than straightforward new-build shared ownership and custom build.

“We’re replicating that model now with later-life lending and equity release, and in second charge. It’s a good blueprint to follow.”

‘Big L&G’, as Smith refers to it, is also getting involved in the construction of what used to be known as ‘prefabs’, now called ‘offsite constructed modular homes’, through Legal & General Homes.

It is a timely move as the Government looks set to announce measures to encourage banks to lend to firms that build pre-constructed homes, to help achieve its housing delivery goals. Housing minister Gavin Barwell recently confirmed that he foresaw a “huge opportunity” in such measures.

Smith says: “We own the biggest factory for producing offsite constructed modular homes in Europe.”

He seeks to allay fears that these homes will be similar to post-war prefabs, which were designed to last for a maximum of 10 years.

“Over the course of the next year we are going to be putting them up and they take a remarkably short time to construct, literally days,” he says.

“Technology in this area has come a long way and these homes will be modern and pre­cision engineered.”

The properties will range from 20-storey apartment blocks to rows of terraced, semi-detached and detached houses.

L&G Investment Management and L&G Capital own a significant share of housebuilder CALA Homes and through it have been building up to 3,500 units a year, adds Smith.

Build-to-rent programmes are another focus for L&G and Smith says the firm will build properties at four sites around the UK, normally several hundred units at a time, with facilities such as launderettes and shops built in.

“These will be blocks of properties for people to rent on a long-term basis. The reasoning is to provide us with good, stable long-term returns that we can back our annuities with,” he says.


With regard to regulation, mortgage clubs are currently being scrutinised as part of the Financial Conduct Authority’s study into competition in the market. Smith says there should be little for concern around this.

“The terms of reference haven’t been published yet but the FCA has made a number of comments and is looking at reassuring the industry that this isn’t saying it’s found problems, and it doesn’t necessarily mean there will be a massive investigation and a load more regulation. So if we take that at face value, we shouldn’t really be worried,” he says.

“We think the market is operating very well in terms of delivering good customer outcomes. The proportion of lending by the top six lenders is back to where it was before the crash, having grown and grown to something like 85 per cent.”

Duncombe adds: “There’s much more choice now and there are more products available, with lenders challenging the status quo, and that’s got to be good for competition.

“There’s more business being done through brokers, meaning customers are getting a wider view of the market, and things like new-build and expanding the number of lenders in specialist spaces have to be good for competition.”

But Smith says some lenders have been concerned about being unable to get on panels.

“It’s like a supermarket,” he says. “If you are Waitrose and someone rocks up and says ‘I made 20 jars of artisan choc over the weekend. Will you put it in your shop?’ the answer is clearly ‘No’.

“We do tens of billions of pounds of lending a year but, if someone says they’re a small new lender and will do £100m next year, it’s just not worth our time and effort – in the nicest possible way – nor the interest of our members.”

Duncombe says: “We can’t add value to that lender and we can’t add value to the broker. There are homes for lenders that want to do that; hence you’ve got packagers around.

“It’s horses for courses; we’ll support the lenders that we can.”

Smith interjects: “Some things aren’t for us. We’re not into heavy sub-prime, for example, and never have been.”

Equity release

Another area in which the mortgage club has taken an interest is equity release. It set up a direct-to-lender panel for the market in April, having formed a master broker panel last year after buying equity release lender New Life.

“The criticism used to be that rates were too high in equity release but, because of our ability to fund this, we think we’ve led the market down and got rates down to lower than some lenders’ SVRs,” says Smith.

Duncombe adds: “In the past, one of the concerns was that, if you had an ER mortgage, your debt would double every 10 years because you were rolling up the interest. But with the rates now below 4 per cent, it’s taking 19 years to double your debt and the average length of an ER mortgage is about 12 years, so the value of that product now is much more significant. That’s why we’re encouraging brokers to look at it as part of their overall advice.

“It’s a new growth area of the market, so we’re helping them to understand it better.”

Next steps

Looking ahead, Smith and Duncombe are keen to understand what lenders and brokers want and need from each other.

“If you wind the clock back 10 years, what was important to lenders was volume,” says Smith.

“We’ve rapidly moved through that and embraced the business quality agenda early on. We have been keen to promote the best possible business standards for brokers.

“We have our nouveau firms, which have very high standards in their quality of distribution, and lenders recognise that.

“We think the next stage of our journey is that lenders will want to do business with brokers who are efficient and tech enabled so that they can interface all those clever systems that lenders have spent their money developing.”

Duncombe says: “You have to embrace the fintech revolution. If you’re complacent or ignore it, you will get overtaken, so we’re encouraging brokers to use it as part of their model.

Smith adds: “We want to play into the digital age and, instead of a 20-minute talk on BTL tax changes, we send out something like ‘Everything you need to know on BTL taxes in two minutes’ as a vine, where all the information is easily digestible. That’s the age we’re moving into.”

On that note, when asked to sum up in an easy-to-digest five-word synopsis the biggest challenge facing the industry, Smith says, without hesitation: “Communicating relevant content succinctly.” To which Duncombe promptly adds: “Complacency.”

That makes five words, ladies and gents, unprompted. The mark of true professionals.

Smith (left), Duncombe and Mortgage Strategy editor Rebekah Commane



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