Business appraisals are an ongoing function for most companies in the mortgage market, but the unusual trading conditions we are currently being forced to cope with have forced firms to look longer and harder than usual at their operations.
In recent years the sheer volume of business flowing through the market has created a safety net for lenders and intermediaries alike, but this has swiftly evaporated over the last six months.
No longer can lenders take the capital they need to operate for granted, and no longer can intermediaries expect business to come walking through their door of its own accord.
Those who want to ride out the storm and remain in the market for the long term are being forced to make some very difficult decisions and really evaluate the markets they operate in and the partners they do business with.
Appetite and ambition
While brokers will be looking to process as much business as possible, the reality for many lenders is that access to capital has become more expensive and constrained.
Funding is not as easy to come by as it has been in recent years and as such, the priority must be in originating the most profitable business, through the most profitable routes.
But what does this mean in practice? For each lender the answer will be slightly different, but all will want to trade with those partners who are most closely aligned to current appetite and ambition.
This will pose some challenges where originators have expertise and distribution strength in a particular area that a lender has no or limited funding allocation.
In these circumstances it is crucial there is transparency and honesty so the door remains ajar for future engagement.
Platform has recently assessed its partners and there remains an ongoing exercise to establish those best placed to trade with.
This is not about ruling out business in the future, but more about being unable to make some relationships viable in the current market conditions.
Platform’s assessment has considered a number of factors, including the quality of the business, the turnaround times, the conversion rates, and the incidence of arrears. Assessing partners in this way means Platform can embrace TCF and importantly work with those running the most efficient processes and systems.
The difficult truth of the matter is that this will mean Platform does not work as closely as it has done with a number of partners in the coming months, but the hope is that by keeping the relationships open and reappraising them on a regular basis, it will be possible to re-engage successfully as the commercial and credit environments change.
Managing business flows
Given the constraints that exist in the funding markets, it is essential that lenders look to manage their business flows effectively and make sure they can keep their operations functioning in the long term.
To date, the mortgage market has been guilty of gorging itself on short-term spikes in volume by offering market leading products, which are then withdrawn once targets are hit.
This approach is all very well when there are no funding constraints, but it is far from helpful in the current climate. What borrowers and intermediaries surely need is a more balanced approach from lenders, which sees them offering long-term consistency.
Many lenders in specialist areas of the market have essentially stopped lending and certainly for some players who were marketing hard only eight months ago, there is now little if any movement to be seen above ground.
Keeping the momentum
Lenders looking to serve the intermediary community and in turn the borrowing public should be trying to keep themselves commercially active, even if their operations are significantly hampered.
By working with the partners that are most aligned to their own operation, it should be possible to manage business flows, even if they have slowed to a trickle in comparison to the highs of recent years.
If we can keep momentum going, nurture those partnerships best positioned to supply appropriate business type and keep the door open to re-engage those that have delivered well in the past, then mortgage lenders will be perfectly placed to get back to business as usual when the storm finally breaks.
The last thing any commercial entity wants is complete stagnation and if mortgage lenders do not hold back and keep some of their powder dry for the months ahead, this is the fate that awaits them.
Kick starting a business back into life after it has seized up and ground to a halt will be a lot more difficult than revving up an engine that has been allowed to quietly tick over in the background.
The industry has been forced to make some very difficult decisions of late. However only by taking them can we hope to avoid more unpleasant consequences and best position ourselves for the future.
