This year marks the fourth anniversary since TSB split from Lloyds Banking Group. Yet distinct footprints of the latter remain etched into the challenger bank’s operations.
The bank is still in the process of migrating from Lloyd’s systems onto its new owner Banco Sabadell’s technology system. The Spanish bank has solid form in integrating new businesses into its existing IT platforms having amalgamated 15 other businesses, according to Roland McCormack, TSB’s mortgage distribution director.
He said: “It really is a game changer for us and it completes the story about being a meaningful challenger bank that has its own technology.
“To create TSB was a massive undertaking – especially on the IT side because it involved the separation of data, which is a complicated thing.”
He added: “When we split [we were given sole control of] our products, our credit, our processes. A lot of them would have been based on what we inherited from Lloyds, but we also changed a lot as well.”
TSB muscled into the congested mainstream mortgage marketplace in September 2013, adopting the direct-to-consumer model. It raises capital for loans through deposits and, to a much lesser extent, securitisation – in which home loans are bundled together and used to back bonds.
Its proposition for intermediaries came in January 2015, following a successful trial period.
This came in the wake of the introduction of onerous affordability rules via the Mortgage Market Review – putting pressure on lenders' mortgage business by requiring them to train their staff to give advice in branches.
Now, more than two years since the launch, it would appear the lender’s entry into the mortgage intermediary market has paid dividends. About 75 per cent of the firm’s mortgage business is introduced by intermediaries, Mr McCormack said.
Some 32,000 new customers were brought in by brokers last year – a 78 per cent hike on the figure for 2015. What is more, £5.1bn of mortgage loan completions advanced through this channel in 2016 alone.
It is therefore unsurprising that the bank is set to pander to the hand that feeds it with plans to start paying brokers procuration payments on retention business.
Vast swathes of the broker community have called on lenders to offer these payments as remuneration for the tougher affordability checks and compliance paperwork in the post-MMR environment.
The new initiative will tie in with a product transfer proposition that is due to be launched later this year.
Mr McCormack said: “We will be announcing in the summer what our procuration fees are going to be. What I can say is there seems to be two approaches that have emerged in the market. The first is lenders paying the minimum they can get away.
“Secondly, there are lenders that recognise there is still an advice process that brokers take their customer through and that costs money. Therefore, any procuration fee should meet that cost. I can’t say what we are going to pay, but I can say that we are in camp two.”
Another pertinent consideration for the bank is the slowdown of the buy-to-let market – resulting from a host of unfavourable tax changes and the tightening of underwriting standards by the Prudential Regulation Authority.
TSB reacted by upping its buy-to-let interest coverage ratio from 125 per cent to 145 per cent last summer.
The lender did not allude to the financial impact of the various changes to its buy-to-let business in its latest annual results, nor did it outline how much the division contributed to the aggregated customer lending figure. However, Mr McCormack said the bank is still generating the “required amount”.
He added: “Like every lender, we are faced with the new PRA’s regulation around portfolio buy-to-lets and each lender needs to decide if they want to be in that market going forward.
“We are currently working on our plans and we expect to announce something, probably in the summer.”
He was coy on what these plans entailed and if they involved a withdrawal from the buy-to-let market altogether, but Mr McCormack gave a cryptic hint stating: “Our proposition is about giving brokers as much choice as possible, so I’ll let you read in between the lines.”
Mr McCormack added the changes have levelled the playing field between first-time buyers and landlords. He added that activity in the first-time buyer market has peaked at a 10-year high, and revealed the lender will seek to better tap into the market by expanding its offering for aspiring homeowners.
Another burgeoning area is buy-to-lets through limited company vehicles, which have benefitted from being exempt from the changes to income tax relief and the PRA affordability guidelines.
Mr McCormack said: “Our belief is it [limited company buy-to-lets] will remain niche for the foreseeable future. Most landlords will probably stay within their current ownership structure because it is very expensive to move it into limited company.”
ROLAND MCCORMACK'S CAREER LADDER
2014-present
Mortgage intermediary director
TSB Bank
2010-2014
Partner
The McCormack Partnership
2009-2010
Managing director
Connell Group – Asset Management and LPA Receivers
2006-2009
Director
Safe Home Income Plans
2001-2005
Managing director
Bank of Ireland Mortgages
