MORTGAGES: Do Hips stack up for Asda?

Guy Anker assesses supermarket Asda's ambitions in the estate agency and mortgage markets

Supermarket giant Asda plans to move into estate agency later this year, providing free home information packs and possibly selling mortgages.

It will start with a pilot scheme in the North-east which will be rolled out nationally if successful.

There are also rumours that other supermarkets and high-street names will look at expanding into activities carried out by mortgage intermediaries.

This could present a challenge for the industry going forward, according to some commentators, although others have dismissed Asda's initiative as a PR exercise.

Mortgage Force managing director Rob Clifford says: "The likelihood of Asda extending its proposition to mortgage origination is high as who would not want the higher income? Most published estate agency results show their profits from financial services are high so it makes sense that Asda would look at mortgages and other financial services opportunities."

Asda spokeswoman Rachel Fellows says: "It remains to be seen whether we will appoint a mortgage broker or brokers but we want to be able to give people the best possible services for buying a house. We will be looking to be able to give people a good opportunity to get a mortgage product but the shape of that has yet to be determined."

Asda has yet to determine the scope of any mortgage offering but Clifford says: "I doubt any single intermediary could deal with the business flow as the Asda book would be huge. Maybe it would use a panel of mortgage products, if it outsourced at all."

Alexander Hall chief operating officer Andy Pratt says: "Banks are always talking about cross-selling. Asda's best option is to build its own mortgage offering and have a panel to get the most value. Appointing a broker would be a short-term solution. It is more likely to go execution-only, maybe with a lending partner, and leave independent advice to the broker sector. Not many brokers have the size to service the Asda account. Asda would have to talk to a large network."

He is confident that the broker market can withstand any mortgage onslaught from Asda as he says it will not be any different from direct offerings by lenders.

If Asda moves into mortgages, the omens are not necessarily good. Rival Sainsbury withdrew its mortgage offering three years ago and simply services existing customers rather than offering new products.

Sainsbury remains tight-lipped about the reasons for terminating its homeloan offering but many in the market believe it did not generate sufficient business.

Many commentators believe Tesco will be next in line to enter the estate agency business although it is not commenting on such suggestions.

But National Association of Estate Agents chief executive Peter Bolton King claims not every estate agent has seen their business boom from financial services. He says: "Some firms make almost no money from financial services but it can make a significant difference to others. The biggest concern I have is that Asda is not the first to have tried, as other brands did in the 1980s and failed.

"If they have people in call centres, then are they going to be able to supply a good level of service as a good quality agency would? They will struggle to offer the level of service required.

"They say their Hip will be free to the customer but it will cost them pound 600 to pound 1,000 plus VAT so how will they make any money? I do not know where the money comes from. Until we see the full proposition, it is difficult to say."

Concerns about the quality of Asda's Hip proposition are shared by Easier2Move sales and marketing director Karen Babington. She says: "Being a low-cost brand, I wonder if Asda will provide a low- cost Hip that is off-the-shelf without adding value for the purchaser as companies like ourselves do."

Hamptons International Mortgages managing director Kevin Duffy says the Asda move is nothing more than a marketing exercise. He says: "This is not going to be something that makes an impact in the houseselling industry. It is more as a PR stunt than to generate significant revenue."

Fellows denies that Asda's service will be sub-standard but admits it will not necessarily provide some of the gold-plated benefits such as Hip helplines that will be introduced by some providers. She says: "We can only lose by devaluing the brand by producing products that do not stack up to the competition.

"We are going to be about offering better services than are available on the high street and we can make a real difference. We want to understand what our customers want and whether that includes the extra bells and whistles on products such as Hips. This is what the trial is all about."

Babington believes Asda's Hip service will provide a wake-up call for brokers that have yet to devise their sellers' packs as they may see other parts of their business fall by the wayside if they miss out on Hips, given the subsequent cross-selling opportunities.

But Clifford doubts how damaging an effect Asda's Hip proposition will have on the broker market. He says: "It is for sure that Asda should consider Hips because no serious estate agent can afford not to. But will consumers accept a Hip from Asda or any other estate agent as impartial and honest?"

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