The definition of monogamy, according to the dictionary, is ‘the custom of being married to one person at a time’. While an expression more usually associated with romantic entanglement, it serves as a useful way of pinpointing the issue at the heart of a debate surrounding lenders’ fidelity in their intermediary relationships.
Much of the debate has centred on two specific aspects, for example, whether lenders with branch networks can ever be truly committed to intermediaries, and whether lenders who go direct-to-broker are marginalising packagers.
Branches versus brokers
Dealing with each in turn, it is by now a well-known fact that mortgage lenders in the UK rely far more heavily on brokers than on any other single business channel. But does it necessarily follow that their loyalty should be exclusively to intermediaries? This argument is worth exploring.
get the daily news delivered to your inbox
The mortgage intermediary sector continues to flourish because it works well for consumers and for lenders. In most cases, and despite intensifying competition, it works for intermediaries too.
With this in mind, it seems reasonable to suggest that all mortgage providers recognise the value of intermediaries. This applies equally to those with branch networks and those whose distribution is solely through them. Indeed, many well-known lenders who invest deeply in projecting their brand credentials on the high street will admit unashamedly to relying on intermediaries for anywhere upwards of three-quarters of their new business production.
Given this, it seems odd to claim that the same lenders would deliberately seek to bite the hand that feeds them by following a strategy to alienate intermediaries. It is equally odd to claim that they automatically make poorer partners. A rational look at the evidence suggests otherwise, albeit with certain caveats.
download our news ticker
Lenders with branches are likely to invest just as heavily in their intermediary relationships. In fact, their investment is probably greater in relative terms. They may, when imagining their ideal world at the behest of a marketing whiz-kid, dream of accessing all customers directly, but what long-established lender hasn’t toyed with a similar thought at some point? But the real decision-makers are likely to be sufficiently experienced to know it simply isn’t attainable or commercially realistic.
This is why so many operate expansive sales teams dedicated to intermediaries, and why they are following the lead of the specialist lenders in investing in broker-friendly processes and technology. None of this comes cheap, but requires structured planning and progressive investment.
It should also be remembered that branches serve a range of functions and purposes, many of which do not compete directly with the interests of brokers. While networks are clearly not sacrosanct to the head office cost-cutters that proliferate in the corporate world, they nevertheless represent a further deep and long-term investment in the fabric of UK financial services.
Can the same be said of all mortgage lenders, especially some of the more recent entrants? Many of these have global parents who, given the chance, would be just as eager to follow the direct-to-customer route as the dreamers in the established lenders. But unlike these, the new-comers’ appetite and stamina for the long-haul has yet to be tested in more challenging conditions – a fact that won’t be lost on the more experienced intermediaries.
The challenge for packagers
The packager versus direct-to-broker question presents lenders with a different set of challenges when setting their distribution strategies. Packagers, as we all now know, have defied earlier predictions of their extinction. Instead, they have evolved to a point where their value in the distribution chain is beyond doubt. But in a highly dynamic environment, their future is far from guaranteed.
register for the next forum
Among the biggest threats is a move by lenders to access brokers – the life-blood of packagers – directly. This has been made possible through the advent of sourcing systems and technology that automates the application process.
Lenders have been encouraged further down this route by the twin challenges of regulation and pressure on margins and income. By eliminating one layer in the intermediary chain – the packager – the lender liberates itself on two fronts. Or so the theory goes.
But, of course, it is never quite that simple, and lenders, far from deserting packagers, are now making extraordinary efforts to woo them. What many have done at the same time, however, is to push ahead with their direct-to-broker strategies by deploying the new technology to good effect. This allows them to maximise the opportunities from both channels, and provides the market with a mixed approach to distribution to satisfy the varying needs of different brokers.
Secured loans
A similar process is also taking effect in the expanding secured loans sector. But faced with a surge of new entrants keen to lock into the boom, those lenders who ignore master brokers – the packagers of the secured loans world – are doing themselves, and the market, a disservice.
find the latest industry jobs
As the sector widens and becomes increasingly sophisticated, brokers unfamiliar with secured loans will need assistance to source the best products for their customers. Technology has an important part to play in this, and there will be greater use of the sourcing system capabilities that now add value in mortgages.
But it isn’t just about technology. Brokers entering the sector for the first time have much to gain by linking with master brokers. These firms have an unrivalled understanding of the market and can provide hands-on support. The more forward-thinking are also investing heavily in state-of-the-art technology to enhance their propositions further.
Master brokers offer incoming brokers a ready-made path to the sector’s best opportunities. Too many have ignored it in the past only to find secured loans a difficult nut to crack. The new entrants shouldn’t make the same mistake.
catch up on the industry buzz
Nor should lenders eyeing up the direct-to-broker opportunity. While not to be discounted, it requires proper handling and a substantial investment in packaging and processing capabilities. Outsourcing these to master brokers is, to many, a more attractive alternative.
There are numerous similarities between current developments in secured loans and the evolution of the intermediary led mortgage sector. This will continue as the two move closer together in terms of product design, regulation, technology and the type of customer and firm they attract. It will also extend to distribution, and secured loan lenders will increasingly adopt the mixed approach to packagers and direct-to-intermediary common in the mortgage market.
A mature approach
Anecdotal evidence strongly points to brokers taking a mature view towards lenders who adopt multi-channel strategies. Far from ‘throwing their toys out of the pram’ as some would suggest, they recognise they have no divine right to the market. But what they are unequivocal about – and rightly so – is that lenders should treat their contribution and place in it with respect.
Whether a lender has a branch network or chooses to access brokers either direct or through a packager, network or club is not the point. What matters is how they do it, and whether one channel is discriminated against in a way that is opaque and inconsistent with the lender’s avowed position. This, I suggest, is what really infuriates mortgage intermediaries.
But there is also a third element of the debate that has the potential to undermine lender-broker relationships – customer retention.
The question of ‘client ownership’ is a thorny one, and one that is likely to become more of an issue as the market becomes more competitive. In such conditions, lenders usually work harder to retain their expensively acquired customers. But where they rely upon brokers for all or part of their business, they should be careful about prioritising short-term customer retention wins over long-term intermediary relationships.
Opinions differ, but in such circumstances it is hard to argue with the view that brokers should usually have first call on the customer, not least because they are best placed to serve their financial needs in a highly regulated market. Lenders who take a contrary approach may find themselves short of friends when they need them most.
In a market that produces over £350 billion of business a year, there must be room for a range of alternative lending strategies. But the value of mortgage intermediaries cannot be emphasised strongly enough. And as the market becomes evermore complex, their role will become even more vital. It’s therefore a brave lender that courts their disfavour.
