myi: Introducers need as many new lenders to come to the market as possible – are you doing your bit to encourage new lenders?
We try very hard to do our bit, and we have come up with a flexible pricing model that encourages new lenders to come to the market.
Lenders can choose to pay very low upfront costs when they buy our software, rather than one large upfront fee, which makes Phoebus particularly attractive to new players.
Lenders or servicers who rent our software simply pay an implementation fee, a support fee (based on a percentage of the book value), and service level agreement costs, which provide a helpdesk and guarantee turnaround times.
Renting out our software, rather than just selling it wholesale, helps to keep new lenders’ start-up costs to a minimum and lenders get high quality software and services for a great price.
We may not be able to bring back lending to the levels or 2006 and 2007, but we’re doing our bit to encourage new lenders.
myi: How is the market for staff at the moment? Is it difficult to hire the right people?
Despite unemployment being so high, it is difficult for us to increase headcount. We require people with very specific skills - our staff need to know about lending as well as IT.
It’s no coincidence that 90% of our employees have extensive backgrounds in the mortgage industry. Because we aim to be experts in mortgages, as well as experts in software, all of our staff need a great deal of experience in both areas.
It is hard enough to hire great IT graduates, especially with the current UK educational system not producing enough individuals with the right skills. But when we are looking for new consultants, we need people with lender experience – in addition to extensive IT skills.
That’s when the real challenges present themselves. As a result, we recruit individuals from a wide variety of IT and mortgage backgrounds. For example, Keith Rogers, one of our directors, previously worked for GE, Heritable Bank and HBOS.
He has cradle to grave lending experience. Another one of our directors, Arthur Woolard, has worked for Barclays, Britannia, and Countrywide. Arthur worked on the design of Barclays front-end origination system and advised Saffron Building Society on their equity release system.
These guys know their stuff.
How do you stay competitive with your peers?
We commit a tremendous amount of our time and energy to developing software that cut our clients’ costs and enhance customer service standards. We spend at least 25% of our turnover on R&D every year.
That’s a lot more than our competitors. Pharmaceutical multinationals like Merck & Co only spend only about 15% on R&D every year – and although telecommunications giant Ericsson comes close with 24.9% – it still can’t quite beat our commitment to research and development.
We are continuously developing new software and working to improve our current systems. It may cost a lot in terms of time and money, but it is the only way to stay ahead of the competition and ensure our systems are leaner and more efficient than our peers.
myi: What do you believe the future holds for mortgage software?
Mortgage software will become more portable. Phoebus is already completely portable, which is a major advantage of our software. Quite apart from the obvious benefits, it saves our clients money.
A new servicer or lender coming to the market doesn’t need a huge number of servers to run our software – the hardware investment is zero. Our clients can also run the platform from their own offices, as opposed to their IT suppliers’ headquarters.
During sales pitches, we can even give real time demonstrations by running the system on a laptop. That makes for an especially powerful revelation for established lenders grappling with systems that were written twenty years ago.
myi: You also work very closely with lenders in your capacity as consultants, rather than in your capacity as IT experts – what’s the future hold for mortgage lending and the property market?
All the economic trends suggest that house price appreciation over the next few years will be modest at best. The tripling in average house prices between 1997 and 2007 will not be repeated, and may even go gradually into gentle reverse in the coming years, especially allowing for general inflation.
Real incomes won't rise rapidly, and, in the end, these are the only thing that support property values: London is twice as expensive as elsewhere because incomes are twice as high.
Pay rises are not keeping up with inflation, and our ability to service a hefty home loan is correspondingly weaker. Behind that is our slow-growing, uncompetitive economy. The outlook for real property demand (as opposed to dreamy aspiration) is, thus, poor.
And the banking system remains fragile, and is in no fit state to resume the borrowing binge seen in the bubble years. Furthermore, the authorities are now encouraging lender thrift rather than lender profligacy.
If the FSA’s proposed curbs on the banks do come to pass, the situation will become yet more bleak. That would ensure that Generation Renters would be perpetual tenants: 95 per cent, 90 per cent and even 80 per cent loans would be rarer than at present.
Moreover, homes are still, by historic standards, expensive, and the deposits of £20,000 or £50,000 now demanded are beyond many young people still struggling with student debts.
