The events of the past year have certainly been unprecedented and the ramifications are all too clear for us to see. Of course these events have had a major impact on the Intermediary market.
 
Supply and demand

With the current liquidity crisis, there have been a number of instances of dual pricing leading to inevitable conflict between Intermediaries and lenders. The Intermediary has and still does supply the majority of lender’s business. But in the current climate, as lenders continue to strive to reduce volumes, lenders face a dilemma in trying to satisfy both intermediaries and also keeping their branches busy.
An additional outcome of the liquidity crisis has also meant that many of the lenders more actively involved in the intermediary markets have funding constraints or have simply disappeared. This has pushed a much stronger focus through the ‘big 6’ (Santander, Lloyds/HBOS, Nationwide, Barclays, RBS and HSBC). All these lenders have large branch networks to satisfy and additionally, some of the ‘big 6’ either don’t distribute via intermediaries or have a limited involvement in this sector.

Compliance and Risk

In addition to pure distribution issues, we are also seeing greater regulatory intervention from the FSA, with TCF requirements becoming ever more pertinent and a number of high profile firms being censured and fined this year.

 
From conversations with various Networks they state that their recruitment enquiries are growing with high numbers coming from the directly authorised channel. With increasing FSA fees and PI premiums, as well as the cost of compliance services, it may well be that the Appointed Representative route may be right for many in the current regulatory environment.

Impact on distribution channels

So we have touched briefly on dual pricing, risk and regulatory issues. How does this leave the Mortgage distribution landscape?
 - Let us firstly look at packagers. With many recent high profile firms already having left the market citing that the financials no longer make sense, it is highly probable more will follow. Those packagers that will survive have already adjusted to the new landscape and have diversified into other areas such as debt management, bridging finance and second charge loans. Technology will be the most important factor for them in the future and where they will need to make their investment.
 - With networks we already have seen some consolidation, but far more is expected in the forthcoming months. We anticipate that within the next 12 months the number of networks remaining will reduce from around 38 today to perhaps as few as 10 – 15.
Running a network requires strength in productivity and a strong product offering and like the packaging market technology will play a pivotal role. Networks that have strong parentage have diversified into noncore mortgage related fields and have sufficient capital reserves.
 - Lastly the Mortgage Clubs. They have diversified into many different fields and continue to build their propositions especially in areas such as compliance services and other income earning streams. Their once biggest attraction, namely exclusives, have been largely removed from their product offering. They will have a role to play in the future but again consolidation will be inevitable.

In summary, the mortgage distribution landscape has started to change and will see more significant changes in the months ahead. Ensuring that lenders develop relationships with the distributers that survive is essential and one that we at Checkmate Mortgages are consistently monitoring.

Peter Izard
Corporate Accounts Director