Has the mortgage packager died? As I look up from my desk and through the glass of my office, I can see both the sales and underwriting departments of c2-financial. Within these departments, I can see the hustle and bustle of staff answering phones, the frantic demands and deadlines being met and my staff in constant pursuit of their targets and productivity bonus. So, let me ask you a question: do you think it sounds like the packager is dead?
I would, however, concede the idea of a packager (from the days of pre-regulation) has changed and, for many substantial packagers, this has been more of a metamorphosis and development into a larger, more commercially and financially sound operation. It is for this very reason that many smaller packagers have in fact left the market and I feel many more will leave the market in the months and years to come. The real question any broker who wishes to use a packager has to ask themselves is, ‘can this packager add value to my business?’ The days of doing business with packagers because you could not access lenders directly are over and so too are the days of doing business with a packager because it is run by one of your old mates. The only acceptable reason to use a mortgage packager now is if it can add value to your business.
Adding value
Adding value to your business means delivering new and innovative products, offering brokers financial rewards and, more importantly, offering broker’s clients the benefit of cheaper mortgage products and cashbacks. Packagers must realise that brokers are competing with many others and so make sure they have the most competitive and the most sought after products at their disposal. This commitment has been demonstrated by the introduction of c2 financials’s C55 and C75 product range and also our competition offering a luxury weekend away in Paris and 42 inch plasma TV’s.
The time has come for the packager to offer the broker some of the financial benefits we have enjoyed over the past few years and packaging companies need to be able to operate in this new market of reduced margin and increased demand for greater niche products.
Stability and management
The pessimistic voices within the industry felt that regulation would cast a dark shadow across the packaging industry. In some ways it has but, more importantly, many packagers have moved firmly into the light. There are two very simple reasons for this, and they are financial stability and prudent business management.
When a broker is looking to place a case with a packager, the broker is quite simply taking their financial future and placing it in the hands of a third party. The broker needs to know and have the confidence that this third party can and will be able to pay their procuration fee. That is why, at c2-financial, we believe it is also prudent for companies such as ourselves and our competitors to publish their financial results, thus giving the broker an opportunity to assess the financial standing of this third party. I know if I were a mortgage broker and if I were dependant on a procuration fee coming back to me, I would feel far more comfortable knowing that the packager is of sound financial standing. I think this point is further reinforced when we look at some of the problems faced by companies who have appeared in the trade press and alarmingly had no ability or means to deal with their capital adequacy requirements by the regulator. I am certainly not saying that I think packagers in general have any financial problems, but I would merely just like to offer brokers the advice to exercise a little caution in this matter.
Expansion
For packagers to have a future, they also need to have the ability to expand and grow either organically or by means of acquisition. We have expanded our business via acquisition and organic growth. We always like to keep the acquisition option ‘on the table’, but utmost caution is required when exercising this. We do feel, however, that acquisitions of this nature should always be built with like-minded individuals and, when their joint companies become one, there should be a greater overall benefit for all of their customers. We do not feel that acquiring a failing business or a business that may have a large amount of indebtedness is either beneficial to our group, or to the market in general. More importantly, such acquisitions could de-stabilise the parent company. I do not mean to sound pessimistic when I talk about acquisitions and, for the record, we are always on the look out for the right opportunity for the c2-financial group.
I do also see networks as a potential risk to the packaging market and I have always believed that one day they would all establish their own packaging facility, rather than panelling their business to other packagers. I have held this view for some time, and recent events have clearly shown that some networks also share this view, but more importantly for the packaging community, is this the view of a few or in reality the plans of the majority?
Packagers need to proceed with caution if they have a heavy reliance on an individual mortgage network. This too could also create financial instability if that network were to withdraw its panel appointment, or start to offer some of the packaging facilities in-house.
Focusing on the DA’s
Our ethos at c2 has always been to focus on the directly authorised (DA) brokers in the UK, as we feel they are not getting a fair deal from many lenders due to their regulatory status. Some people have said they feel that the networks have started to create cartels (built around their financial standing and ability to distribute large volumes of business) and those brokers who decided to go it alone are, in many circumstances, unable to compete on products with some of their intermediary competitors.
Our products are available to both networks and DA individuals and we do not offer any different products based on a brokers membership of a particular network or club. The real success of a packager is quite simply down to the success of its customer and, more importantly, the longevity of its relationship with that customer. DA brokers need assistance, innovative products – ones which allow them to compete on a level playing field, and these principles are core to the management and staff at c2-financial.
So, in essence this is certainly not the end, but more importantly the next step in the evolution of mortgage packagers. My final word of caution is to our competitors – remember, the only things that evolve by themselves are disorder, friction and malperformance. You and you alone control your future.
Justin Caffrey is operations director at c2-financial
