No one can deny that one of the success stories of 2006 so far has been that of the packagers and branded lending. In the run-up to ‘Mortgage-Day’ there was a great deal of speculation around how regulation would affect the packager market, with some predicting a decline in the sector. However, not only did this downturn not occur, but the market today is thriving.
In 2005, the Regulatory Alliance of Mortgage Packagers (RAMP) announced a 51 per cent increase in completed business in November last year over the same period in 2004. In addition, research in December 2005 revealed that 64 per cent of intermediaries are happy and confident working with packagers.
So it’s fair to say packagers are doing well, but this is a dynamic and competitive market. No one can afford to stand still. The packagers who continue to succeed will be those who are innovative and inventive in the way in which they add value to their proposition to meet brokers’ needs. The relationship between lenders and packagers is not just about procuration fees; but about product, service and a strong marketing strategy, all of which can impact strongly on long-term business success.
For packagers and wholesalers who are successfully re-inventing their role, branded lending will play a key part in providing borrowers with a more suitable mortgage deal in the future, supported by a quicker and more efficient service.
Pilots light the way
The mortgage market has lived up to predictions of an ultra-competitive year with lenders vying fiercely for market share. Unsurprisingly, the battleground is at its most intense on products and rates. But designing new products or tweaking existing ones is only half the battle – lenders are going to have to be increasingly shrewd about how they bring these products to the market or they may just get lost in the crowd. The surge in new product initiatives (NPIs) is going to mean that they are going to have to think as much about marketing strategies as they are about product innovation.
In much the same way as any product is unique, the marketing strategy should reflect that too – the success of two very similar products may rest quite simply on who communicates their offer and brand better to the customer. Even in a crowded marketplace you can create a distinctive marketing plan highlighting your unique selling point (USP).
Among the many benefits of branded lending is ‘piloting’. Through the packager channel, lenders can pilot innovative product design and marketing to test broker reaction. Branded lending allows lenders to work more closely with packagers to refine product design and test the response to new ideas in a controlled environment. At the same time, customisation, and some limited exclusives, help packagers to differentiate themselves by offering products not generally available elsewhere. Lenders can help packagers differentiate their offering through a specially tailored combination of product and service enhancements. After all, differentiation is not simply about customised products and rates, but about the additional services, such as onsite underwriters, that are provided. To date, most product customisations have been rate-driven but there is real potential for powerful niche developments – not just to drive competition but also to push for overall growth in the mortgage lending market.
Test the water
Branded lending pilots help lenders and packagers advance their understanding of the market. By analysing the market and product you can establish the strengths, weaknesses, opportunities and threats associated with a product launch, but it is still advisable to test the conclusions that have been reached. Increasingly, pilot launches are being used, with distinct distribution channel selection. This can be used to assist in refining product features and is particularly useful to test and learn about innovative products. It also has the added benefit of cementing relationships with key intermediary partners.
In an immensely competitive sector, it can be hard to differentiate between financial products – products and services provide comparable benefits and prices are roughly similar. Therefore recognition of, and trust in a brand, counts for a lot – and can have a serious impact on customers. For instance, ARs have not been choosing which networks to join simply on the basis of fees. The brand values of networks had a big part to play in this, which is why they have been particularly active in their public relations and advertising. Branded lending can help companies assess the value and attraction of different brands to different areas of the mortgage market.
The future
At its most basic level, branded lending enables the people who really know the mortgage market to provide a better service to benefit borrowers and mortgage sellers in particular, while enabling proactive lenders to participate enthusiastically and respond to borrowers’ needs that could otherwise go unfulfilled.
GE Money Home Lending is committed to the market and believes it will keep growing – indeed we are continuing to increase the number of onsite underwriters we have with packagers. With the success of the model to date, it is likely that branded lending will be a key feature for most, if not all, packagers/wholesalers lending in the specialist and non-conforming sectors.
Judith White is national sales manager at GE Money Home Lending
