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The NACFB is the only UK trade body dedicated to the commercial finance broker. We represent members from across the whole commercial finance market: from buy-to-let specialists and commercial mortgage advisers to vehicle finance brokers; from leasing and asset finance specialists to factoring brokers. All NACFB members comply with an industry recognised Code of Practice
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Adding another string
14th January 2008
Business Moneyfacts
February Edition
Adding another string
At the Mortgage Business Expo in November last year, there was a flurry of interest from residential mortgage brokers in the commercial finance market, and what it could offer. But it’s not just brokers who are looking to diversify. Adam Tyler, Chief Executive of the NACFB, looks at some of the unforeseen effects from the credit crunch.
Late last year, I wrote an article for Business Moneyfacts explaining why I thought that the current contraction in the credit market could actually be good news for commercial finance brokers. For those of you who missed it, the argument went something like this: In times of plenty, such as the credit markets have enjoyed in recent years, money is, by definition, easy to get hold of and therefore (usually) cheap. This means that the benefits of using a broker to source finance are less apparent. Conversely, in times of a market contraction, money is more difficult to find, and money lent at a reasonable rate even more so, so the benefits of using a broker are more apparent. Although it’s undoubtedly true that experienced commercial finance brokers currently have to work harder than before to place deals, they are in the privileged position of knowing both that they can be placed, and, more importantly, where.
At the Mortgage Business Expo held at Earls Court at the end of last year, many residential mortgage brokers visited the NACFB stand looking for help and support to add extra strings to their bows. Because of the contraction in the residential mortgage market, moving into commercial mortgages seems like a natural progression. Because of the reasons stated above, it’s not a great time to consider starting out in commercial finance - although anyone who’s serious about commercial finance shouldn’t let the market conditions put them off. The commercial mortgage market is significantly different from the residential mortgage one, therefore the learning curve is quite steep; and to make life a bit more tricky lenders are tightening their belts making deals harder to place.
But lenders are ‘diversifying’ too, at least in terms of their routes to market; and experienced brokers should benefit as lenders are now looking to brokers to provide more and more of their business. This is demonstrated by the fact that in the last two to three weeks we have had five applications for Patronage from lenders. The Association has always had both broker members and lender Patrons. The Patrons of the Association are lenders, lessors, factors or bridgers – in short any business who want to market to our broker membership, who support our Code of Practice, and who are not broker firms themselves, can apply for patronage of the Association. Patrons see the value of using brokers who abide by a Code of Practice as a route to market; and they support that Code, although as they are not actual members of the Association themselves, they do not need to abide by it. Patrons are valuable supporters of the Association, and it is often by working with them that we work most effectively with our members. However Patronage applications are usually received on a one-a-month basis – so to receive five in two weeks is exceptional.
The trade press have highlighted recent incidents of lenders who have not survived the recent downturn. Victoria Mortgages was one of the first UK lenders to shut its doors, but there have been others, most recently 5D Finance, who have closed their doors to new business. Like brokers, lenders need to diversify to survive, and one comparatively inexpensive route to market is to get business introduced by brokers.
Of course, many of these lenders already had a broker channel – but there does seem to be a greater interest in exploiting this channel more fully that there had been previously. Each individual broker that a lender contacts represents a potential customer base made up of all of that broker’s clients. Obviously, there are fewer brokers than brokers’ clients, so the team required to manage those relationships can afford to be smaller than a direct business channel. This means that the possibility of marketing to brokers offers a less labour intensive and therefore possibly more cost effective route to market than marketing to clients directly.
The outlook for 2008 is still uncertain although I would suggest not a bleak as it’s often painted. Anecdotal evidence from members suggests that the business is still there to be written, although business owner-managers’ understandable caution about the current state of the market means that it isn’t there in the quantities that it once was.
But with brokers being in the best place to secure a good deal from a lender, and lenders more actively courting that business, the picture is not so bleak as it might first appear.
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