Bob Hunt is chief executive of Paradigm Mortgage Services
Quality versus quantity is one of the constant debates within many different types of industry and while not mutually exclusive of each other, business owners will often feel they have to align themselves closer to one than the other.
Do they choose to adopt a “pile ‘em high” approach in which quantity is the victor but a lower margin may result or do they opt instead for less prolific volumes and concentrate on the quality and resultant value of what they are selling?
The latter tactic may not see individuals conduct as much business, but the superior quality of the proposition and service provided can often dictate that a higher price is charged, meaning that business owners choosing this route can more than make up the ground on their more productive peers.
Mortgage brokers will be familiar with the quality versus quantity argument and the Mortgage Market Review may send some advisers back to the drawing board to reconsider the focus of their business models. The intermediary mortgage market is a very different world to the one we all inhabited before the global financial crisis where only the most biased commentator could pretend that anything other than quantity (volume) dominated proceedings.
Many brokers now take a much more refined approach to proceedings, but this is not simply down to personal preference. A massively contracted market has pretty much eradicated “quantity” as an option, not to mention the fact that lenders have become far more discerning about the kind of borrowers they choose to lend to (the priorities vary amongst lenders dependent on their appetite for risk and often the scale and infrastructure of the lender in question). Now application quality as well as the performance of the loans features far more than it ever used to.
One way banks have, and are trying to, filter out those brokers who are unconcerned with the performance and value of their business (to the recipient lender) is by rewarding the quality of business with improved procuration fees.
Some lenders are ahead of others in establishing relationships with larger mortgage firms and distributors that have a reputation for high calibre, well-established and experienced advisers. Here application quality is high enabling them to sort the wheat from the chaff.
Advisers who want to be taken seriously by lenders focusing on quality (and this increasingly means the majority of lenders) could do worse than aligning themselves with such propositions.
The economics of the environment in which we operate are constantly changing, however I anticipate there will always be those for whom quantity is the most important thing as they chase business volume and accept business from all and sundry in order to meet targets.
Notwithstanding this, the fact is that lender targets are increasingly less about volume and far more focus is being placed on scale and quality, with rewards shifting in line with the quality and value created. Certainly the more forward-thinking distributors have readily acknowledged this and lenders are coming round to the idea whilst working out how they can effectively judge the quality of applications, completions, etc.
Some may bemoan the fact that distributors like ourselves have a selective admissions policy but this is all part of maintaining the high standards that lenders now demand. There is no prestige in joining a club that has an open door policy after all. Would people be so desperate to dine at Heston Blumenthal’s The Fat Duck restaurant if you could walk off the street and get a table rather than having to book months in advance? Probably not. Likewise, with quality distributors it is all about operating to high benchmarks and being seen to do so.
Broker firms and their principals that join distributors should not only expect lenders to take a close interest in the distributor’s list of member companies and the quality of business they write, but they should also be looking even more closely than perhaps previously at their own advisers and their behaviours and competence.
Once upon a time mortgage broking may have been regarded as a straight-up sales job with minimal skill required but those days are long gone. Mortgage regulation in 2004 weeded out some of the less committed individuals and the MMR is the latest regulation intended to increase the professionalism of the industry, enhance the quality of advice and ensure the most important people, the end customer, receives a better service as a result. There may be some unintended consequences of the rules but I think, at their heart, they are attempting to protect the consumer and stop the market getting carried away again.
As a footnote, and as a message to any interested lender, as you weigh up your choices and develop your respective strategies, please don’t make the mistake of believing distribution solutions lie in dealing with, or excluding, certain regulatory categories of intermediaries.
If you’re not already doing so, please engage with intermediaries and distributors, the majority of which are keen to understand and improve our industry’s lot, just as you are. There’s an old phrase that comes to mind: “If you want to mine coal, ask a coalminer.”
I believe we are just at the start of such a process and those ignoring the importance of quality stand little chance of being the real winners once the (coal) dust has settled.