Competitive rates of interest are a good thing for consumers, especially as affordability is a big issue these days.
However, the cheapest product does not always mean it’s the best outcome for a borrower. Brokers already look at the big picture and client circumstances.
Perhaps some lenders need to follow their lead.
Price competition
Price competition is a good thing. However competing solely on price is not, as it is difficult to sustain in long term. Just ask Nokia.
I will also go as far to say that just competing on price is actually not a good thing for the long term health of the industry.
Competing solely on price leaves lenders exposed. It is also harder to manage volumes. Therefore, in this new interest rate environment, it is important that lenders get creative and add more value to brokers and their clients, and not rely solely on price.
One problem with price led competition is that erodes margins.
Competing solely on price makes it harder to increase market share, as you are more likely to have volumes that reflect the market than the strength of the brand.
Lack of investment
Eroding margins means lenders can’t reinvest as much in their staff training, technology, broker education and so on.
That is why I believe that the winners in today’s market will be lenders that add value and don’t compete solely on price, so they can grow market share.
And they can invest in a better proposition for the market. Accord and Coventry are two good examples, but there are more I could name.
Non price competition
To be fair to the top six lenders, this is harder to do than those operating in the specialist market. But certainly not impossible. And one or two do this, to a degree.
It is about having a clearly defined proposition which will lead to an increased Decision in Principle (DIP) to completion ratio – and operational efficiencies.
It is about having staff that truly understand brokers. It is about making the application process easy. It is about being human and helpful.
Marketing budgets have been cut, but history tells us that causes problems later on. With most communication now based on rate changes; brokers tell me that they have simply forgotten what brands stand for.
Brand based marketing must be about half of what lenders deliver now, with demand based giving that equal balance. That will lead to the ability to not have to be the cheapest.
Just imagine what a couple of extra basis points on products, without impact demand, would mean to the balance sheets of the big lenders. Without an investment in marketing and the brand, that makes it harder to get to.
Now I am not talking “branding” in terms of logos and colours here. A brand is everything you do and say. It is about the positioning through to the experience and an investment in better experiences is needed.
For specialist lenders, it is going to be about clever product development. It will mean being brave and not being a follower, but a market leader.
There are lots of opportunities to do things differently in the more specialist areas of residential and buy to let. I know this because I have been listening to brokers who have lots of great ideas.
The future
The market got stuck in a world or price competition in the years that followed the 2008 Financial Crisis, when interest rates were flat.
Now, swap rates change quickly, but your brand will not. It is time to rethink the competitive armoury, of which price is one part of the mix. But price is not the string to the bow.
Jeff Knight is director at The Mortgage Marketing Forum
