Mark Snape is managing director of Broker Conveyancing
Over a decade on from the Credit Crunch, it’s clear to see that we are a long way down the road from that period in terms of the competitive elements of the mortgage lending market.
In that immediate period, post-Crunch, advisers were able to count on their fingers and toes the number of ‘active lenders’; now you would need to utilise a fair few of your colleagues to be able to do likewise.
Competition is clearly a positive element of today’s market but, from recent announcements, it is obvious that competition can be unforgiving, especially when it comes to the lending sector. Then again, with more lenders ‘active’ now than in the period pre-Crunch, it always appeared likely that a pinch point was coming and something had to give.
As I write, that pinch point has obviously come for Sainsbury’s Bank which has announced its decision not to take any further mortgage business and is actively looking at sale options for its mortgage book.
The human cost of this, in terms of employees of Sainsbury’s Bank, is as yet unknown but I think we might all agree that it is never nice to see a lender leave the market and we hope all those impacted are able to find positions quickly elsewhere.
What can we make of this decision though? Is it a coincidence that this is the second supermarket, after Tesco Bank, which has left the lending space this year?
What might be the reasons for this and, like Tesco Bank, I’m sure there will be considerable interest in what happens to its existing mortgage borrowers.
We do not truly know whether Tesco were put under pressure to sell its book to an active lender, Lloyds Banking Group (LBG), in order to ensure a large number of ‘mortgage prisoners’ were not created, but one would be surprised if Sainsbury’s weren’t ‘encouraged’ to go down a similar route.
Indeed, at the recent FSE London show, a representative from LBG hinted that there would be future opportunities for it to buy smaller loan books – perhaps she had wind of Sainsbury’s Bank’s decision in advance of when it was made?
There does however seem to be no doubt that both Tesco and Sainsbury’s Bank’s decisions to leave mortgages has been a result of the competition and squeezed margins it was facing in the sectors they chose to be active in.
We can talk a lot about the ability (or otherwise) of supermarkets to sell their financial products at the checkout, but the simple facts appear to be that the vanilla/mainstream/low LTV/low risk mortgage borrower, targeted by these lenders, is incredibly well-catered for, by huge banks/building societies, with cheaper sources of funds, and therefore cheaper rates.
In that sense, you wonder how others who tend to focus on this part of the mortgage market, are going to compete going forward.
They are no different to Tesco’s/Sainsbury’s, albeit without the other fingers in a large number of other pies that might well have hastened the supermarkets’ decision to leave mortgages.
And, in my opinion, there’s the rub for these two lenders in particular.
They are mega-brands with mega-reputations to protect; they would not wish to have poor performance in a much smaller part of their business tarnishing that of their key focal points and therefore it makes sense to make an exit now before there is any kind of brand contagion.
It’s also for this reason that I suspect Sainsbury’s will follow the road travelled by Tesco’s when it comes to selling their book – think of the negative PR they would receive were they to sell to a non-lender?
Especially at a time when the entire industry is focused on trying to move ‘mortgage prisoners’ out of their predicament, not potentially adding more to their number.
This episode – and we do await to see how this concludes – does seem to show that the mortgage market can be a brutal place for those who might appear slightly out of step with the needs of their potential customers and the competition that exists for their business.
It’s no wonder that other lenders are looking to diversify and move into niche areas, away from the traditional mainstream market, especially when you consider the big names fighting for that business.
An inability or a reluctance to do this can be troublesome at best, and catastrophic at worst. I read recently a piece by a broker suggesting that they hadn’t seen any case recently which was pure vanilla, instead all seemed to have a degree of ‘spice’ in them.
Meaning that the traditional, vanilla borrower tends not to exist in the same form as in previous generations – most clients come with some degree of complexity with them and it is those lenders who react and accommodate these borrowers who are likely to survive and thrive.
The case is similar for advisers – you cannot rest on your laurels in the traditional areas of the market because competition and technology is changing this space.
Diversification is crucial, not purely across the mortgage market but into other areas such as protection, insurance, conveyancing, legals, etc.
It is those businesses who see beyond their traditional activity who are likely to be putting in place the strongest of foundations to deal with whatever the market brings next.