Over the past 12 months there has been a lot of movement within the mortgage market, with new entrants forging paths into exciting and competitive sectors. However, with speculation that the mortgage market is set to be flooded as more organisations hope to capitalise on the opportunities within the market, the question has to be asked – is there enough room?
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Revolution
The mortgage market is undergoing something of a revolution. Buoyed by continued house price rises, and changing social and economic conditions, including a rise in the number of people classing themselves as self-employed, and those forced to take out a non-conforming mortgage due to missed payments and arrears, the sector has been forced to adapt.
With growth in previously niche sectors, from non-conforming to buy-to-let, large financial institutions have recognised the opportunities currently presenting themselves within the market, and new, and established lenders have moved to place themselves well in the industry. However, while changing conditions have led to an overhaul of the industry, in a speech delivered to the Building Societies Association, Paul Lewis, presenter of the Moneybox programme, criticised the amount of mortgages on offer, indicating that there were now over 10,665 products available within the market. Lewis said: “No one can rationally choose between all this. It’s not choice and competition, it’s complexification – the deliberate act of making products so complicated that no one can understand them. Customers can never be sure if they have been sold the right product or not and they find it hard to tell when the product goes wrong, and if it does, they can never find the evidence to sustain a complaint.”
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Need spurs demand
However, as with any market, need spurs demand and innovation, and the number of products available undoubtedly have a place, otherwise they would not be in existence. While 10 or 20 years ago, mortgages were cut and dry with very few options, as the housing market has evolved, so have peoples’ needs. New lender entrants into the market have obviously recognised this, as Bill Dudgeon, managing director of db mortgages, explained: “While we are more than 12 months in from our launch date, and are still a relatively new lender, we believe that the specialist market in particular has become very competitive. This in turn provides better choice for advisers and their clients, and demands excellence from lenders to stay ‘in the running’. At db mortgages we took a phased approach to launching distribution rather than the ‘big bang’ approach, and as such we will continue this approach for the remainder of the year.”
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While a number of institutions have diversified their offering, launching into new markets, a completely new lender has to deal with the fact that they will be fighting with established, and respected lenders. Julie Gaskin, corporate relations manager at GMAC-RFC, admitted that any new lender would have to provide something new and innovative to succeed in the market. She explained: “To establish themselves, any new lender must have a clear proposition and point of differentiation; competing purely on price is not a sustained strategy as we have seen from some of the new market entrants this year. New lenders have to have a very good distribution strategy, first class technology and products but most importantly they must have the right people.”
Paul Hunt, head of marketing at Platform, added: “The specialist mortgage market is an extremely crowded place now and the battle for business is fierce. It is becoming more difficult to differentiate between lenders and it is becoming very hard for new entrants to bring anything new to the market. Margins are decreasing and with more high street lenders entering the market, this trend will continue. Therefore niche markets are attractive, as they possibly promise higher margins. However, prudence is wise, as lenders need to ensure their pricing for risk model is accurate.”
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Vein of opportunity
It is clear that the mortgage market represents a clear vein of opportunity for financial institutions looking to increase their finances on their balance sheet. While the mortgage market is definitely becoming more crowded, those that survive in the market will have to continue to adapt to the changing needs of the market and the users, be they consumers or intermediaries. Those that are able to provide excellent service standards matched with competitive products and continued innovation will reap the benefits, but those left behind will find it harder playing catch up.
