Nostrum and HML join forces to target work in loans market

HML, the financial outsourcing firm, has teamed up with a software specialist to go after contracts in the £160bn unsecured loans market

The marketing joint venture with Harrogate-based Nostrom Group represents a move into new territory for HML, the 80m-turnover subsidiary of Skipton Building Society.

The company expanded rapidly as an administrator of mortgages during the years of easy credit, but has been hit by the freeze in new lending.

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Brian Brodie, the chief executive, is looking for new growth areas for HML, which employs 1,800 people.

Discussions with Nostrum began 18 months ago and have so far resulted in two contracts.

In the first, the companies are processing 3,000 to 4,000 unsecured loan applications a month on behalf of a well-known sub-prime lender.

In the second, a combined team has been set up in a bank to help to resolve a backlog in processing.

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Mr Brodie said: "It's about how we use our ability to deal with large-scale operations and about how we can use our infrastructure to help the joint venture to grow and to win bigger deals.

"For us, the mortgage market is a challenging place and we would like to diversify to other product areas and this is an area we found appealing."

In the past, he said HML had to turn down opportunities in unsecured lending because it did not have the systems capability.

Richard Carter, chief executive of Nostrum, added: "We are a specialist IT provider to the lending sector so we provide a lot of experience about how to provide the right IT platform to organisations that want to do unsecured lending.

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"We are able to bring the IT platform and the domain expertise. It compliments the scalability HML can bring to the relationship."

Nostrum employs 60 people and expects a turnover of up to 4m this year. It provides software for clients including Barclaycard, Rothschild and Iveco. It also has a small outsourcing operation.

Mr Carter said: "From time to time, we find opportunities we would love to progress but we are just not large enough.

"Historically we would have regrettably had to decline to tender for those. Now, because we have the relationship with HML, we can act as a feeder and bring it into them."

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HML manages around 45bn of mortgages – many of which are sub-prime or self-certification – on behalf of 30 lenders but since the credit crunch there has been a dramatic fall in the number of active lenders. In 2007, the UK had 170 active lenders; now there are around 12.

While the downturn initially meant more business for HML, historically low interest rates have helped more people to keep up to date with mortgage payments.

Mr Brodie said: "One of the biggest growth areas in HML over the last few years was in credit management – chasing people for money they owed in arrears on their mortgage.

"As the economy started to get worse, HML had to grow its numbers significantly. It almost tripled its numbers within its credit management business.

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"The good news for an economic perspective is that arrears are starting to settle and go down so there is inevitably going to be some consequence of that."

The company has had to make around 200 redundancies this year. It made a "small loss" during the first six months of 2010, according to David Cutter, chief executive of parent Skipton Building Society, although the business has had to shoulder the costs of restructuring and moving into a new 16m headquarters in the Dales town.

The joint marketing venture between the companies will target both existing legacy loans and new unsecured lending. The total UK market for unsecured lending is believed to be around 160bn. Most loans last three to five years, compared to the much longer term of a mortgage loan.

Mr Brodie said: "If all you've got is legacy, then that's a challenging place to be because it's always going down. The key to success will always be to get a good mix where origination is replacing the run-off."

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