The packager market has suffered from the credit crunch in recent months and good news has been eagerly awaited to give the sector a boost.
The announcement then that Pink Home Loans, a division of Skipton Building Society, has invested in BDS Mortgage Group to take a majority shareholding has not only been positive for both parties involved, but also for the entire packaging sector.
The move was made as part of Pink’s objective to strategically expand its business practice and will ultimately result in a combination that lent over £13 billion last year and will enjoy an overall team consisting of 550 business writers and 50 satellite packagers.
So is this is a move that will benefit the entire packaging sector, or simply give it a minor boost? There is no doubt that there is substantial benefit for the companies involved.
Barry Meeks, who has been appointed as chief executive of the combined group, admitted that the move was strategically done to establish one of the largest mortgage networks in the UK.
Meeks said: “BDS, through the high esteem in which it is held within the industry, its comprehensive packaging infrastructure and growing appointed representative network, will certainly compliment Pink’s proposition and I’m sure this will lead to many mutually beneficial business opportunities.”
BDS managing director, Phil Jay, was also positive, and stated: “The ability to be in a position to call upon additional resources and expertise in what is a rapidly changing industry will give BDS an extremely advantageous position of strength, especially in the packaging arena.
We have been in talks for some time about bringing together the combined strengths of the two companies into what will be a formidable force in the UK mortgage distribution market and it is great to see both businesses achieving their ambitions.
"This gives both BDS and Pink a greater foundation on which to be at the forefront once the mortgage market returns to normality.”
Changing models
There is no doubt that this is a strong move for the packager market; with doom and gloom surrounding the sector it is in need of a strong boost of confidence.
Talking last year, Jay claimed that one reason why packagers were struggling was because of the lack of integration with lenders’ online application system.
To this Kevin Paterson, group marketing director at Enterprise, suggests that one of the problems is that brokers are not going out of their way to place business and lenders are tightening their ranges to discourage applications.
He says: “Packagers need to change their business models to embrace technology in order to survive the crunch and move into the future.”
John Smith, sales and marketing director at GHL Group, admits that the move by Pink will be good for the sector, but may be the beginning of a changing time for packagers.
He says: “My take is that the marketplace is changing for packagers and not just because of the credit crunch, but because of certain lenders pulling out of the market. This acquisition does not surprise me as the way that the numbers have been squeezed the cost of running a successful network has gone up.
“A network with a packager has changed and the deals are difficult as the lenders are providing less and the margins are squeezed. If you’re buying distribution you want to add to your bottom line and the winners will be the ones who get tied distribution and their IT systems integrated. It’s about backing the right horses.
Consolidation will continue, there is no doubt about that. With what the Financial Services Authority is doing with small firms and ‘Treating Customers Fairly’, more companies are being pushed into umbrella companies.”
Other options
So what other options remain for packagers in order for them to stay afloat? Nigel Payne, managing director of The Mortgage Business claims that both self-cert and buy-to-let business are vital areas to ensure that packagers remain working.
Payne says: “It is encouraging that packagers are able to benefit from markets such as self-cert and buy-to-let. Being able to rely on these markets means that packagers will be able to fill any gaps in their income with the returns that can be generated in these sectors.”
Dale Jannels, sales and marketing director at All Types of Mortgages, agrees that firms are grateful to get business in, but his was focusing on buy-to-let and prime until the market normalises.
There is no doubt that this will be a tricky year for packagers and there needs to be some effort made by them to ensure that they are visible to both brokers and lenders. IT is a key area and packagers therefore need to prepare themselves for a struggle and hope that they are still operating when the market picks up again.
