Clearly packagers now have to demonstrate added value or even re-invent themselves as service providers for both appointed representatives (ARs) and directly authorised firms.
According to some brokers, many lenders have invested so heavily in new systems that they increasingly find going via a packager could slow things up. Fears over the accuracy of KFIs have added to the woes of packagers with some brokers only trusting documents produced themselves direct from lender websites.
Barry Robson, managing director of Genesis, said he believed technology had added substantially to the problems facing packagers. “Brokers were making sure they were not responsible for KFIs by taking then directly off lender websites, instead of using sourcing systems,” he said.
Tony Corrigan, managing director of Manchester-based distributor Classic Network Solutions, said in the post-‘Mortgage Day’ environment he slashed the number of lenders on his packager panel. “We had to bite the bullet and went down from 22 to just six lenders. But these were lenders we know inside out and can guarantee to get cases through quicker. Profits on the packaging side have actually increased since the decision,” he said.
Corrigan added: “Packagers have to concentrate on the lenders which are most profitable for them. It’s like trimming the tree to increase the size of the bush.” He admitted that Classic had made three positions redundant in the process.
It is now clear that many packagers who sought to protect their distribution by creating a network have found themselves in a precarious position. On the one hand very few have recruited anywhere near as many AR firms as they predicted they would this time last year. However, because they are now running networks they also find themselves in direct competition with the large IFA networks who otherwise might have put them on their packager panel.
Keith Dearling, director of sales and marketing at Liverpool-based Advantage Home Loans, said “I think the key to our success is that that we have stuck to what we are good at, instead of going off trying to start a network we have found it more profitable to get ourselves on network panels.”
Well-known packager adversary Michael Bolton, head of BM Solutions and Halifax intermediary business, has long held the belief that packagers are set to become a redundant part of the mortgage origination process. “The first emerging trend that packagers could no longer make money from buy-to-let and self-cert occurred some time ago with the non-conforming sector the only area where proc fees can still justify a packager’s existence.”
He added: “The fee structure in non-conforming is the one area the FSA have so far not got under the skin of. But you have to ask how much longer that will last.”
One of the strategies that packagers have opted for is to band together in order to achieve economies of scale and offer large volumes in return for attractive and exclusive deals. Many of the larger organisations have joined either RAMP or PMPA but up until now many smaller firms were to an extent left to fend for themselves.
However Paul Brett, sales and marketing director of Fastcom Mortgage Packaging, recently set up a small packager collective, the Freehold Group.
Brett explained: “Primary strategies for smaller packagers to ensure prosperity must include gaining access to products and technology by joining forces with other packagers in groups like Freehold, which will allow them to compete with larger competitors.”
However he admitted: “Equally important will be the need to look at opening new distribution channels such as going direct to the public and getting access to the panels of networks.”
Going direct to public may not be an easy choice for some small packagers. Firstly, firms could find themselves treading on the toes of their broker clients and secondly as Dearling points out, “there are already a number of firms out there with a huge head start”.
It is not all doom and gloom for packagers though. Both em-financial and Optoma have reported a busy February, no doubt making the most of the raft of new products unveiled across the non-conforming range of lenders.
Stuart Brumhill, head of marketing at em-financial, said: “We have actually taken on a customer service team to help us deal with the workload.”
Brumhill added that one of the key strategies for packager survival had to be to encourage brokers to make full use of any ancillary services. “We work hard at selling things like our bridging loans and Spanish property services,” he explained.
One packager which has re-invented itself perhaps more than any other is Pink. The Skipton-owned firm now describes itself as a mortgage distributor as opposed to a packager, with only 20 per cent of its income currently derived from its packager operation. Tony Jones, managing director of Pink, said: “We have focused our attentions on the mortgage club and providing a range of services. You have to re-invent yourself to ensure you can offer the best service to brokers.”
It could be argued that packagers should have foreseen the drop in volumes following regulation. Bill Warren, director of The Complete Network, commented: “You have to ask why a number of businesses did not ask the question, where is my distribution going to come from when so many brokers will be tied into networks? Perhaps people were a little bit blinded by the pre-October boom, which they thought might go on forever.”
