Over the last year or so perhaps the biggest challenge facing mortgage clubs, and indeed networks, brokers and lenders alike, has been managing change since ‘Mortgage Day’. Looking ahead, the key question is where do they go from here?
Clubs have revisited their position and there is no doubt that regulation offered the opportunity to change their business model. After much consideration some stated their intention to become a Principal for mortgages for appointed representatives (ARs), as well as offering services to mortgage brokers and IFAs who wished to be directly regulated by the FSA. In offering a range of solutions to cover all aspects, for most, the ‘mortgage club’ is encompassed within the heart of the network model.
Access to products was a major concern for brokers and there was a view during the build-up to regulation that they would be given access to every product in the market, including exclusives negotiated by individual clubs, regardless of the network they were a member of. This was not the case and still isn’t, therefore brokers should choose their club wisely.
Every broker’s needs are different, therefore the more flexible the solution the better. After all, it’s still very much a people business and square pegs don’t fit round holes. Certainly a number of mortgage clubs have built substantial distribution for lenders and established a track record with brokers over the past decade. Attracting brokers will still be a key part of the overall picture, and should complement the other offerings, including the AR route. The most important factor is providing choice so the solution can continue to fit the broker’s needs. For example, Mortgage Intelligence offers three solutions, the Spirit network for brokers seeking AR status, Vantage for those seeking direct authorisation with support services and Elan, which is our fee-free mortgage club.
Loyalty
The mortgage clubs did maintain many of their members post-regulation with many brokers showing great loyalty. Furthermore, lenders seem to feel more comfortable with the AR concept because the regulatory responsibility is taken on by the network. However, as the market continues to develop, they are becoming increasingly aware that DA brokers using clubs can deliver substantial volumes of business.
Both the AR network and the DA club propositions are attractive and the value of established distribution has been an important factor post-regulation. In particular it has provided financial stability alongside the new AR network proposition. The clubs provide fringe benefits such as fast payment of proc fees, exclusive deals and the benefit of a closer, more personal, relationship.
The current DA/AR split is approximately 60/40. Looking ahead, I believe the split will be nearer 50/50 and that will only enhance the potential use of clubs. This will be driven partly by more IFAs choosing to move into the mortgage sector to supplement their income from investments and pensions. This may well result in a surge in interest for specific compliance services especially as the FSA starts to tighten up in this area. The clubs that are able to offer a range of solutions will be the best placed to cope with the change of business routes, i.e. traditional mortgage club with exclusive products as a result of volume business, traditional club with additional IT support and compliance available, and ARs accessing the club.
Networks must focus on delivering all that they promised to brokers and provide value for money. A well-run mortgage club adds this much needed value, and certainly that existing relationship may well have been the reason for a broker choosing that network when becoming an AR.
To complicate matters further, the mortgage market was buoyant prior to ‘Mortgage Day’; brokers were rushed off their feet and some may feel they made the wrong choice. A significant number will have chosen their network on price, being concerned about meeting an entirely new cost on top of their day-to-day business expenses. Price, of course, is always important, but you also have to get value for money, and this is harder to determine. A key consideration for ARs is to be sure their network and club have the strength of distribution to offer good proc fees and products.
Glad all over
Those brokers that took the trouble to carefully select a quality network with a sound mortgage club as well as the other essentials such as compliance infrastructure will be glad they did. Those that have discovered their chosen network is not up to scratch and doesn’t have a strong club should consider switching. The same applies to directly authorised brokers. Many have now decided they prefer to concentrate on increasing sales and use the support and infrastructure of a professionally-run network with a strong club to support them in this respect.
Brokers need to take a long hard look at what they are actually getting from their club and compare this with what is available elsewhere. Ask searching questions. Assess what clout they are likely to have with lenders in terms of being able to negotiate exclusives. Look at the size and breadth of their panels. Visit their offices. Look at their financial stability. Ask to try out their IT system for ease of use.
Many DA brokers are considering the AR route too, as they are also clearer about the kind of support they need. The ‘do-it-yourself’ approach may have impacted on the amount of time they have been able to spend on clients and as a result have probably seen their income fall too. These brokers will be turning to their club to deliver attractive products and proc fees to help offset the increased cost of regulation. Having said that, it’s been an expensive exercise for the major networks too and the lenders will have to help shoulder these costs.
Brokers need to know they have access to a slick and streamlined mortgage process. They need to be able to deliver what the consumer demands in a timely manner – well-run and funded clubs can deliver this support.
Brand and reputation
Perhaps the clubs with the best chances of survival are those with established brands and solid reputations that are already known to brokers. People in all walks of life are inclined to favour those that they know and can trust to do a good job, as this reduces risk and uncertainty. That’s what building a brand is about. Without a unique selling proposition, new entrants will find it tough to compete. As market forces prevail, the weaker clubs and networks lacking the necessary investment and infrastructure, will show their shortcomings and ultimately disappear.
We operate in a challenging marketplace. The clubs that have the ability to develop, adapt and deliver an attractive range of solutions will be the ones that will achieve success in this environment.
Sally Laker is managing director of Mortgage Intelligence
