Is it time to unmute the mutuals?
Martin Stewart (pictured) is director at The Money group (TMG)
Who remembers carpet-bagging? Hang on, before you all reach for the Urban Dictionary to see if you have been missing out on something, let me save you the time and effort.
Carpet-bagging was a huge phenomenon back in the late 90’s although the roots of it were set as far back as 1986 when the City had its ‘big bang’ awakening. The rules were changed, and they gave Building Societies the chance to diversify their mutual status and become PLCs in order to access different capital markets.
This allowed them to become more competitive and challenge the high street banks in terms of price and criteria. Sounds great, but if you are looking for smoking gun for the credit crunch of 2008 then look no further. History holds all the answers. A salutary lesson in the importance of understanding the law of unintended consequences.
Anyway, back to carpet-bagging. Because these Building Societies were mutual it meant that, in essence, they were owned by their savings and mortgage account holders. So, for them to convert to PLC status, they had to induce their members in to agreeing to a takeover or flotation with the offer of cash or free shares. These inducements often ran into thousands of pounds.
Cue a whole movement which saw people run around town (myself included) opening qualifying accounts left, right and centre, in the hope that when Midsomer Building Society decided to compete with the likes of Barclays, I was going to receive a cheque for doing absolutely nothing.
And it worked. We said goodbye to Woolwich, C&G, Abbey National, Northern Rock and Bradford & Bingley (see above point regarding unintended consequence) and a host of smaller Building Societies that merged along the way.
I was lamenting this recently when I was thinking about the first mortgage I did back in 1995. It was with Leeds although my memory fails to recollect whether it was Permanent or Holbeck. What younger brokers in the industry might not realise is that until the early noughties a vast amount of mortgage lending was undertaken by the Building Societies.
I am not here to compare apples with pears because everything has changed since those days but what the smaller societies offered back then was a very personable approach. A true relationship-based, symbiotic arrangement that saw two sides of the same coin working to help the person that really mattered – the client.
Fast forward to today and I see social media platforms awash with angst. They are full of brokers railing against the corporate, faceless, lending machines that dominate today’s market. Brokers sitting diligently in a phone queue clutching their number, waiting to be called forward like they are waiting at the ASDA deli counter. Add to this the fact that if I had a £1 for every time someone asked me “who is our BDM now?” and I reckon I could probably start my own bank. To top it all off it hurts me to say, but it does not look like many of us are having fun right now and life, without laughter, can quickly become a joyless vacuum.
But here is a glimmer of hope. Across TMG, we have seen our engagement with the smaller building societies increase exponentially, sixfold for one lender in particular. As life for the borrower becomes more fluid at a time when criteria become more rigid, we are starting to see huge value in dealing with these smaller lenders.
They can take a very pragmatic, manual underwriting approach to some very complex situations. They have also mastered the long-lost art of picking up the phone when you call. A lot of this comes down to education and understanding where the lenders are best positioned. I have browsed through the ‘Bumper Book of Industry Myths’ and many brokers still think mutuals cannot price competitively or just do 3x income at a maximum of 10% LTV.
That clearly is not the case and during the pandemic they have rescued many a desperate client. But it is noisy out there and hard for them to get heard but I think we owe it to them to try and listen.
Is it time to unmute the mutuals and hear what they have to say? Let us not forget they were once the foundation of the mortgage market. As I have stated many times, you only need a lender, a client and broker to have a functioning industry. Perhaps less is more after all and big is not necessarily better?
So, while a lot has changed since 1995, let me tell you something that has not and that is the job itself. Conceptually it is no different today from what it was back then. Yes, the environment is different, and the machinery is shinier but the job itself remains the same. That job is to simply find, debate, negotiate and then introduce a client to a lender who we trust is best suited to meet their particular need. It does not have to be the biggest lender, just the right lender.
Keep that simplicity at the forefront of our minds and we might not even need a regulators handbook and we might just get away with a post-it note instead.