Tim Hague is director of Sagis
Variety, they say, is the spice of life. Indeed, variety is the basis of our entire social and economic structure in the UK. Not only are we, as a nation, hugely adaptable to new cultures and ways of living, but we also actually have a regulatory body dedicated to protecting variety in all sorts of markets. The Competition and Markets Authority (CMA) steps in when variety, competition and ultimately choice looks as though it is facing compromise.
In August, the CMA did just that, announcing an in-depth investigation into the proposed deal between US chip manufacturer NVIDIA and British semi-conductor chips and related product designer and provider Arm.
In a statement, the regulator said: “Ultimately, the CMA is concerned this loss of competition could stifle innovation across a number of markets, including data centres, gaming, the ‘internet of things’, and self-driving cars. This could result in more expensive or lower quality products for businesses and consumers.”
I can’t claim to be an expert in how semi-conductor chip IP access will or won’t affect my quality of life, but I am glad that the CMA takes it so seriously. Indeed, mortgage lenders, banks and building societies are only too aware of the precarious line they must toe when mergers, acquisitions or the purchase of back-books are concerned.
Ultimately though, the UK’s mortgage market is hugely competitive – the sub-0.9% rates which we’ve seen over the summer months are testament to that. But what is sometimes glossed over is that competition comes in all shapes and sizes. Price wars are fundamentally about taking slender margins of market share away from your most direct competitors. They work, but there’s nothing very scientific or innovative about them.
In a post-pandemic market, borrowers are crying out for some clear differentiation between what lenders can offer them and what products will work for their personal circumstances.
The end of the furlough scheme, stamp duty holiday and emergency business loan scheme, and the reality of payment holidays cutting across mortgages, credit cards and car finance, will all present borrowers with a complex array of challenges when they come to move or remortgage.
The rise in grandparents releasing equity to pass to children and grandchildren to get them onto the property ladder presents another set of challenges. Then, there are the newly self-employed, the part-timers and those heading into retirement with considerable debts to repay.
The mortgage market has options for all of these applicants, and good brokers will have established relationships with lenders that cater for certain niches.
Where lenders are clear on their specialisms, the key questions for the next 12 months are likely to focus on how to capitalise on this, through tailored distribution strategies, better use of technology and improving the digitisation of processes to up efficiency and productivity.
Regional societies, which have balanced a focus on local community finance with transitioning to more complex lending over a wider footprint, may be wondering how to stay competitive and relevant in the long-term. Previously left alone to serve niche and complex markets, these lenders are now finding that the larger players are encroaching in their space.
But smaller lenders can’t easily afford the digital technology developments or scale needed to drive efficiencies and deliver the experience customers and brokers now demand.
Physical branch presence is fundamental to the community spirit and role that so many regional societies play in their environs.
The support, relationships and community provided to local customers – especially older and vulnerable customers uninclined to go completely online – is what makes the brand and business of value.
Regional players, like so many others, are having to increasingly turn to intermediaries, including quite a few societies which didn’t previously have a broker presence.
The challenge is to deliver a proposition for local communities and secure the volume of lending they need from further afield.
Recent research published by NerdWallet, a digital contender, found that three in five Britons would now consider a bank with no physical branches. However, a significant 28% of customers said they were influenced to select a bank because of convenient access to a branch.
With more than 300 UK branch closures in total already confirmed by Santander, Lloyds, Halifax, HSBC, NatWest and Barclays in 2021, filling the gaps is a strategy in itself.
Nevertheless, the boards of smaller lenders and mutuals may be feeling increasing anxiety around how to maintain those things that their customers love about them, while also embracing a future already upon us.
The key to success here is understanding who your customers are, what they value, and what they need from you and from all their financial services providers.
Variety takes all sorts, and that applies to lenders just as much as it does to the borrowers they serve.
What is needed is a clearly thought through strategy, executed effectively and decisively.