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The last two years have filled the mortgage-lending graveyard. The headstones of
5D Finance, SPML and Preferred stand alongside the marble tombs of edeus, Rooftop,
and Advantage. Other lenders hang on by life support, comatose until they can secure
enough lending to start originating again.
They may not have to wait too much longer. After two years of contraction, 2010
will see the return of the lender.
In many respects, this is an ideal time for a new institution to enter the market
or for an old one to start lending again – with so many rivals wounded and profit
margins at decade highs, there is good business to be had. Where there's margin,
there's value. Well-capitalised institutions, unencumbered by legacy assets, will
be in a particularly strong position.
Both sides of the political spectrum are competing to push more competition on the
sector. “We will look to reduce barriers to entry... to increase competition and diversity
in the UK banking market,” the Conservatives declared in their “white paper” on
financial sector reform in mid-July 2009. The Chancellor soon got in on the act,
declaring, “We need more competition and that's something that we intend to encourage.”
The market is responding to the political and commercial stimuli. Virgin Money may
buy Northern Rock's good assets. Tesco is pushing into financial services. Sainsbury's
Bank is lurking in the wings. Vernon Hill, the founder of Commerce Bancorp, is setting
up Metro Bank. Bank of China has already dipped its toes into the UK market and
AnaCap Financial Partners has launched Aldermore. The rumour mill suggests as many
as 30 new lenders could be waiting in the wings. The FSA has confirmed at least
10 firms have applied for licences this year.
Once they get their licences, and once they have secured their funding, a lot of
these new lenders will need new IT systems. And that they will need these systems
fast. They will need to get to the market ahead of the competition to capitalise
on their first-mover advantage.
A few years ago, they might have been in trouble. During the mortgage book, there
was more than one lender that had to delay its launch due to IT problems. These
systems are complicated and can take years to build. Fortunately, the mortgage industry
has been as busy innovating as the lenders it serves. Now, software providers like
Phoebus can support companies who are attempting to race to the market. We can build,
install, and have a new system up and running in a new lender's premises, originating
and servicing loans within 8 to 12 weeks.
And doing all this in a tenth of the time it takes the FSA just to give a new lender
a licence, doesn't have to cost the earth either. For instance, Phoebus rents out
our software, charging a percentage of the book value.
When the torrent of new mortgage lenders coming to the market in 2010, expect the
best mortgage software providers to set some technologic records. |
