Banks hold the aces
Mark Davies (pictured) is managing director of Link Mortgage Services
Much is being made of disintermediation – by that I mean the ripping up of current processes and the reshaping of current value chains.
We have seen in recent times Habito, a mortgage broker, become a lender and Landbay disintermediate capital markets by securing ‘lend to order’ finance from JP Morgan.
There are plenty of larger directly authorised firms mulling Habito’s decision.
After all, with so many five year fixed rates being sold and automated product transfers in play from lenders like Santander, sustaining volumes for shareholders is looking a tricky prospect.
Much of this change is being driven by technology. Larger balance sheet lenders have the wherewithal to invest in customer centric operations – and indeed their direct operations make this essential if they are to hold their own in the face of possible competition from tech giants or overseas players.
Customers, and in particular the generations coming through, expect instant decisions and a lender’s ability to deliver these responsibly will see them hoover up market share in the future – whether intermediated or not.
We all recognise the need for sound advice but the regulator’s latest pronouncement on the need to focus even more on price in the follow up to the MMR recently is enough to leave many wondering how execution only and aggregators might fit into this conundrum.
But there is also another piece. Open banking allows the current bank to become the defacto broker for banking services which include mortgages.
Rather than product switching within their four walls, the high street will have the facilities to broker the clients mortgage themselves. What really makes this attractive is that in an era of low margins, disconnecting fees from the interest rate is particularly attractive.
Far more lucrative to automatically switch a current account, mortgage, bond etc for a monthly fee across the entire market let alone their own product ranges than rely on skinny margins from products with too short a lifespan to really make a difference.
Something has to change HSBC often lead where others follow and their decision to slash jobs and admit 80% of their profit comes from South East Asia tells you all you need to know about the value of UK mortgages currently in the big scheme of things.
And the banks have the means to do this. A recent FCA study uncovered the top six providers now have 88% of the UK’s current accounts – this has grown from 80% a few years ago.
Challenger banks have clearly struggled. With this sort of resource to hand, and the responsibilities that go with it, it cannot be surprising if banks become the master brokers.