Upon his retirement, Mortgage Strategy columnist James Chidgey, reflects on the early days of the intermediary mortgage market as he bows out of the industry after 34 years
Mortgage Strategy invited me to write some reflections upon my retirement from the industry. This is a necessarily short focus on how I saw mortgage distribution via intermediaries formally take root in the mid-1980’s, with probably 1985 generally recognized as its ‘Year One’ – although not too many people realised that at the time.
Mortgage distribution evolved rapidly during the 1980’s, with the crucial development at the start of the decade being the relaxation of controls on banks’ balance sheet expansion. The banks responded by expanding their business in residential mortgages, which was seen as profitable and low risk, during what was then an economy still in recession.
UK Banks began coming to market with discounted and some fixed rate mortgage products, hitherto the jurisdiction of building societies, traditionally offering discounted variable rate mortgages, and largely direct to consumer.
In 1985 there was a new class of mortgage lender setting up, many were wholesale funded, or funded by foreign bank parents, and whom collectively became known as ‘centralized lenders’ – centralizing mortgage processing in one building, not in branches, and most significantly, dealing exclusively through financial advisers.
UCB Home Loans was the first of this new group of lenders to offer a five-year fixed rate mortgage, whilst Lloyds Bank had been the first in the UK, a year or so earlier. Other names that were part of that unique class of the mid-80’s, most of which, like UCBHL, are brands long since passed into mortgage history, included National Home Loans, Household Mortgage Corporation, The Mortgage Corporation, and Mortgage Trust.
I joined UCB Home Loans as Head of Underwriting in late summer of 1986, from a City and agency background. UCBHL was a subsidiary of French owned Compagnie Bancaire Group, set up a year earlier, distributing fixed rate mortgages entirely via intermediaries, the majority of business coming from advisers working for Direct Sales life assurance companies. The most prolific over the following few years were Allied Dunbar and Abbey Life, selling their associated investment products, the most common being an endowment policy. Along with the UK’s original mortgage broker firm, John Charcol, it was a case of know them and you pretty well knew your key distribution.
The business coming to centralized lenders exploded in the latter part of the decade, helped by Chancellor Lawson creating a ‘cliff-edge’ in his March 1988 Budget, confirming that ‘Double MIRAS’ would cease on new applications at the end of August. The industry struggled to meet this huge spike in demand from joint borrowers, desperate to benefit from double tax relief and complete their purchase during that long crazy summer.
This played its part in prompting centralised lenders to become more innovative and they began setting their business sights far higher in terms of gross lending.
At UCBHL, operating in a manual low-tech environment, we originated the concept of new business teams exclusively dealing with one supplier eg. John Charcol. Case officers managing their own portfolio of pipeline cases from ‘cradle to grave’ rather than moving stages of the case from person to person, enabled us to cope with demand and began building individual adviser relationships, in a controlled way, seeing the trends of borrower types a particular adviser was introducing to us. As our business grew, we instigated daily (often twice daily) credit committees, to oversee cases which were complex or of high value.
We were pioneering back then, no doubt just as fintech firms are today, by creating processes that bring speed and instant data to the mortgage transaction, although for me the fundamentals haven’t greatly changed. Take today’s ‘instant’ mortgage offer, well 30 years ago we created a mortgage offer document available to advisers in their own offices. This was cutting edge stuff, piloting this with the Hambro Countrywide Group, and which formed a backdrop to a BBC TV Panorama documentary about the new mortgage world. Borrowers receiving an ‘instant offer’ – yes, subject to etc. – but quite an advantage to the adviser in that time of quill pen and ink.
Mortgage products were adapting quickly to the economic conditions prevailing in what was a largely unregulated environment, and with mortgage rates forever climbing – Bank rate was in double figures between 1988-92 – low-start fixed rate mortgages were created, flexible deferred payment terms offered, specialist mortgages designed for professionals, and High Equity products for self-employed borrowers, later known as self-certification mortgages.
It was a time our intermediary partners wanted a market advantage, a service or product, over building society branch offerings, or as one life company boss said to me, ‘James we must have an edge’!
We may not have realised how pioneering we were, but we knew when we were guinea pigs, being one of the first lenders in the UK to introduce credit scoring in the early 90’s. This entirely new form of credit risk assessment was initially complex for the market to take up, and as the ‘front of house’ man at the time, I still bear the scars of introducing and explaining this new underwriting tool to our intermediary partners.
I imagine those now at the centre of intermediary distribution – be they lender sales management or managing lender panels at networks, clubs and major broker firms – thinking they’ve been short-changed in this pandemic, without the intense socializing and networking we have enjoyed for so long. After all this industry thrives as a people business, and meeting some really outstanding business colleagues is something I look back on with pride.
But the social scene in mortgage distribution hasn’t always been the vibrant, entertaining, diary packed program that I experienced and witnessed for some 25 years.
I moved from underwriting to become head of corporate accounts in 1990, into a social scene that barely existed. The industry was coming together in a small way when new trade bodies were created, reflecting the presence of the new lenders, firstly IMLA (originally as AML), followed in 1990 by the Council of Mortgage Lenders (CML), now UK Finance. Suddenly there was a CML annual lunch to attend, and we and others had the novel idea of inviting key intermediary partners to this unique event. IMLA reciprocated soon after with an annual dinner, but these were just about the only significant events until the ‘mortgage boom’ began once again, in the late 90’s.
Looking at a CML Lunch booklet which they handily produced at the time, of the 300 or so guests attending in 1995, I found fewer than ten names who are still in, or part of, our industry today; such do the generations change.
Awards dinners as we know them today didn’t exist save at one consumer mortgage magazine, and although building societies dominated their awards, I became a regular annual attendee as centralized lenders became more noticed. Who would have thought awards dinners would subsequently ‘go viral’ when we crossed into this century!
However, the first half of the 1990’s saw this new mortgage world face its first housing recession, and the decade became one of even greater innovation and change, with the second half culminating in the creation for private landlords of an exciting new product, the residential buy-to-let mortgage, but then that’s another story.
