Justine Tomlinson is marketing director at Mortgage Next
How confident are you about the future? Are you looking forward to further growth and increasing profitability in 2007 or are you preparing yourself for a tougher year ahead?
A report issued recently by Lloyds Bank says that companies confidence in their own business and the UK economy generally is at a four-year low. Apparently, firms in the South and those operating in the industrial sector are most pessimistic. Those in the North and Midlands and those in the service sector are a little more bullish about the economic outlook.
The root of the problem appears to be concern about rising interest rates, a slowdown in the US economy and the continued strength of sterling against the euro, all of which is giving British firms the jitters. The Bank of England’s desire to keep inflation under control will almost inevitably lead to rate rises (which may have happened by the time this article is published), which may also have the effect of slowing growth in the housing market.
If you combine this more pessimistic outlook with a general belief that the rate of growth in the housing market is likely to slow down during the next couple of years, the inevitable conclusion is that life is going to become tougher in the mortgage market in 2007 and beyond.
Confidence is key
However, that doesn’t mean you need to be despondent and batten down the hatches. The key issue is confidence. If you’re confident that you have a robust plan in place for the future, there is good chance that your business will continue to grow and prosper. If, however, you have no business plan, then you’re leaving your future income earning prospects to fate, which is never a wise thing to do.
When I speak to brokers about planning for the future, a couple of themes keep on emerging. The first is whether there is a need for intermediaries to change their regulatory status and the second is how they can break into new markets.
Is the grass greener?
The regulatory status issue is an interesting one. As the debate continues to rage about whether direct authorisation (DA) or appointed representative status (AR) is best, there is a danger that some brokers start to think that ‘the grass must be greener on the other side of the fence’. We deal with both ARs via our network and DAs via Mortgage Next Partners, so I see the argument from both sides.
The simple answer is there is no simple answer. For some, the benefit of belonging to a network, which provides regulatory support, has significant negotiating power with lenders and which provides support with issues such as technology, business prospecting and training, is well worth having. For others, the unfettered freedom of being a DA is worth the extra hassle of having to take direct responsibility for managing the compliance regime of the firm.
If, however, you are reviewing your regulatory status, don’t be taken in by some of the misleading comments which have been made in the press recently. For example, it has been suggested that DA status is significantly less onerous than being an AR, because the Financial Services Authority (FSA) has had very little to do with DA’s to date. Although that has been true historically, it is no longer true today. The FSA’s ‘light touch’ in regulating DAs is changing and you only have to look at headlines on the FSA’s own website to see it is taking a far more active role and is both fining and closing down DA brokers when it believes it is appropriate to do so. The playing field is being levelled. It would be a bad error for ARs to change to DA status simply because they feel it offers a less onerous compliance regime.
ASUB
Another issue is cost. I have read some scaremongering stories in the press, which paint a negative picture of network membership from a cost perspective. The truth is that compliance has a cost whether you are a DA or AR. The cost for ARs is more apparent because fees are paid to a network principal. The costs for a DA firm are embedded in the business and are therefore more difficult to identify in isolation (e.g. staff costs). I’m not sure how much there is to be gained from trying to work out whether DA or AR status is cheaper than the other. The key issue is does the regulatory status you have chosen suit your business model and does it enable you to keep growing business volumes and profitability for the future? If it does, then stick with it.
Growth
Which brings me neatly on to my next subject: growth. If you are going to be confident about the future, you need to feel confident that your business will continue to grow. But in a slowing market, that means doing something different and expanding into areas in which you may not be currently active.
The good news is that this shouldn’t be too onerous a task. Start by doing the obvious. For example, do you arrange conveyancers when you arrange a mortgage? Most borrowers don’t maintain a working relationship with a local law firm and are happy for their broker to recommend a conveyancer. You can earn good fees for very little effort. Also make sure you are reviewing all the protection issues which are appropriate to your client. I am still amazed how frequently essential insurances are overlooked.
Finally, don’t be afraid to consider new markets in which you may not have been involved in the past, such as secured loans, commercial lending or equity release. There is a wealth of support available from lenders, trade bodies, network principals and mortgage clubs. My advice is to take advantage of this support.
Don’t be afraid of the future, just make sure you’re prepared. If you are, you’ll have every reason to remain confident.
