This is the last Taking Stock I will write before moving to Bellpenny and the wealth industry at the start of September. I am very much looking forward to the new challenges ahead but will reflect on my time at Countrywide with immense pride. Peter Curran will take over these musings from here, along with management of the financial services division at Countrywide.
I would like to use my last column to look to the future and talk about where the industry could be in a few years from now.
First I want to examine the impact of technology on what we do. Does anyone really believe that, in five years’ time, more than 75 per cent of our work will be completed face to face?
It is fascinating to see that some areas have already embraced change. Land and new homes is almost entirely a telephony service, yet a highly specialised area for advice. How much better would it be with a screen-to-screen delivery mechanism linked to an application form? Like the banks, brokers will need to think about how telephone-based advisers can be recruited, retained and motivated in call centre-type operations.
How will execution-only work in the mortgage industry? Who will be the Hargreaves Lansdown equivalent of mortgage broking? These are the questions we should be asking.
Remote delivery (phone and web) for remortgaging is growing rapidly. Santander is doing particularly well in this area and I fully expect lenders to mount an impassioned fightback linking their mobile banking apps with consumer remortgage options. This will be based on giving the consumer two or three options to pick from, all of which are considerably cheaper than standard variable rates.
I also believe it will not be long before a comparison site enters the remortgage space. I have spoken to a number of private equity firms with very clever people trying to build the algorithms necessary to enable proper comparison of lender products. If a well-backed and well-funded site were to launch (with, say, Google’s backing and a £50m advertising budget), what consumer would not find a possible saving of £1,500 a year compelling at a time when an increase in the Bank base rate is looking more and more likely?
The travel agents and insurance brokers did not believe their businesses would be impacted by this type of entity entering the space, so it makes sense to be paranoid to survive. Mortgages are difficult to understand and, in a highly regulated environment, this buys us all time – but time will not stop technological advances.
My second forecast for the years ahead is that the lender and distribution market will not look much different from now. The strength of the balance sheet and the funding advantages it provides to the top six lenders is the biggest barrier to entry for any new challenger banks.
Lloyds Banking Group’s mortgage stock must be close to £350bn, with a balance sheet of over £1tn. HSBC has an even bigger balance sheet, albeit not in UK mortgages – yet. The top six banks will continue to dominate product manufacture, with fewer larger mutuals and challenger banks.
There is probably a space even now for a challenger bank aggregator, with Aldermore, CreditOne and Shawbrook (never mind Atom, Metro and the 27 others awaiting regulation) all entering the FTSE 250. Not all will be independent within the next five years.
Similarly, who believes ownership of mortgage distribution will not consolidate further? Five of the largest are Aviva, Countrywide, L&G, LSL and MAB, which are all quoted and need to show steady revenue and dividend growth. They will purchase more or align more distribution behind them.
With current close oversight from the Financial Conduct Authority, I believe networks will consolidate only to those that can afford systematic investment in ensuring consumers get the best possible outcome from their appointed representatives.
Balance-sheet strength in distribution will be increasingly important, with investment in technology and compliance (alongside the changes described above) meaning there will be fewer even larger firms.
That does not mean that local brokers, either directly authorised or AR, cannot thrive. More than likely there will be greater specialisation in brokerages: the growth of the private rental sector and land and new homes means specialising in these areas will continue to provide a solid living certainly for the next five years.
On a final note, I wish everyone well. The mortgage industry and, in particular, brokers have proved themselves resilient. The years between 2007 and 2010 were especially difficult, if not impossible. Yet here we brokers are with around 70 per cent of the distribution.
I have many friends within the industry – lenders and brokers alike – that I wish well and I hope you all have amazing success. See you around – of that there is no doubt.