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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 funding 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 secured their funding, a lot of these new lenders
will need new IT systems. And they will need these systems fast. They will need
to get to the market ahead of the competition to capitalise on their firstmover
advantage.
A few years ago, they might have been in trouble — 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 software 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. It 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 does come to the market in 2010, expect
the best mortgage software providers to set some technologic records. |
