Increased competition for business, a possible slow down in the housing market and impending regulation for the mortgage industry ‘ times are difficult for the mortgage intermediary. So what can brokers do to make sure their business continues to prosper in these uncertain times?
Some recent articles in the media suggest the country is on the brink of a serious economic slowdown and that we should, as an industry, remain cautious as to what lies round the corner for the mortgage market. However, there are promising signs that the economy will stabilise and therefore the mortgage industry should be cautiously optimistic.
Simon Biddle, marketing and communications manager at Preferred Mortgages, points out that although market conditions flattened slightly in the first quarter of 2003, the international scene now looks calmer and therefore the remainder of 2003 looks promising. ‘With interest rates at record lows, borrowers have unparalleled access to a range of excellent value mortgage products. Looking beyond 2003, the UK economy looks in reasonable shape in comparison to the rest of the world and therefore our outlook should remain positive.’
Guy Batchelor, sales and marketing manager at Platform, agrees: ‘We are starting to see a slowdown in house purchasing transactions but that is compensated by the level of remortgage transactions. At the beginning of the year, the Council of Mortgage lenders (CML) reported that 50% of all mortgages now are remortgages.’
All industries constantly face change and the mortgage sector is no exception. Not only do we have an uncertain housing market to contend with, there is much talk by industry watchers about how regulation is likely to damage the mortgage market as we know it and therefore any business that does not have the flexibility to adapt to market forces will wither and die. In previous times, as an industry, we have risen to the challenge of changing market conditions and have developed new sectors, such as self-certification mortgages and buy-to-let products to serve the needs of new markets. There is no reason why it cannot do so again.
Keep to existing client bases
So, in these uncertain times, what can a mortgage intermediary do to make sure their business continues to prosper? For some the answer lies in the notion of flexibility itself. First, look at where the most profitable business is being sourced from and investigate areas which are not currently covered. Some broker firms may already have affiliations with various professional contacts, but there are other areas to consider, such as debt councillors and book-keepers. They are a rich source of mortgage business and are always looking for sources to place business.
However, Biddle stresses that marketing to an existing client database can still be a flexible approach. ‘Offer them new ideas and products. Take a long hard look at all promotional activities ‘ for example direct mail and advertising. Ask yourself is it providing value from money? Do not be afraid to experiment and ensure you put a budget in place,’ he says.
He also outlines the importance of client retention. ‘Actively manage existing clients. For example, if a broker has arranged fixed rates re-solicit those clients before expiry and discuss other options. If the broker operates in a very specialist area, they should perhaps look to new mortgage products and give clients wider choices. A constant flow of new clients via referrals is always essential.’
Batchelor agrees. He says: ‘Keep reviewing the databases of clients and past clients to ensure they are getting the best rate and be aware of all the products available on the market. It may be simple advice but brokers should also be proactive and explore any new avenues or recommendations.’
One possibility to consider is to specialise in one area, such as self-certification, buy-to-let, sub-prime mortgages or equity release. However, whether to specialise or not very much depends on local market conditions and typical client characteristics, and Biddle claims that a wider approach to individual mortgage requirements will usually bring added benefits to a business. Biddle says: ‘Keep in mind that what has worked in the past may not in the future and adopt a flexible approach to any changing market conditions.’
Biddle is right to urge taking a flexible approach to operating in just one market. Undoubtedly, flexibility to different markets will be needed to grow any business, as it is anticipated the market will see an increase in competition with more IFAs expected to move into the mortgage market before the Financial Services Authority (FSA) takes over.
The intermediary community will need to have an open mind with the markets they choose to operate in. It will be vital to adopt a flexible approach and demonstrate an understanding of markets, such as equity release and commercial lending. With changing UK working practices, it will also be worthwhile to be able to demonstrate an understanding of markets, such as self-certification lending.
New markets will inevitably play a large role in the future for all intermediaries. With this in mind, brokers could choose to increase their income by the sale of peripheral products, such as non-regulated life, MPPI and buildings and contents insurance. Biddle emphasises the importance of considering selling associated insurance products with a client’s mortgage. He says: ‘Satisfying clients’ needs with general insurance products will be vital. Many non-IFA intermediaries miss out on valuable income streams such as general insurance. Why let the lender arrange the general insurances? It is simple to arrange an agency for buildings and contents, MPPI and non-regulated life cover. Clients have expectations of products and it is vital that the intermediary is able to provide solutions.’
The second most used word in the mortgage market after regulation has to be technology, and intermediaries who do not embrace and adopt technology into their everyday business dealings will struggle to compete during the coming years. There are many who will remember the mortgage industry before the internet had a commercial use and the most technological tool at our fingertips was the abacus. Things are changing constantly and the internet brings with it many opportunities.
Batchelor says that all intermediaries should have their own website. ‘Lots of lenders are now willing to accept applications online from intermediaries and those lenders can now offer better products and better procuration fees,’ he says.
Biddle adds: ‘Technology can reduce the running costs of a business, increasing transaction speed and giving added client service benefits.’
Take a look at the company’s client-facing website ‘ make it exciting, make it something that an existing client would want to look at and make it useful to potential clients.
Quick and efficient service will always be important to the client. Look to invest in technology both in hardware and software and keep up to date. E-mortgages will happen one day and when they do brokers will need to be ready.’
The internet is the shop window which is open 24/7 so an idea may be to network and make professional affiliations with other product providers on the web? It can only enhance the brand and increase the amount of business that an individual business will receive.
Many packagers offer software, website design and hosting, which can be white labelled to help manage client banks and day-to-day tasks. Seek them out and adopt them into the working regime. It will allow the firm more time to spend on increasing business.
Technology also allows for more effective communication. An email or text message to a client updating them on their application can save a lot of time. But remember that clients will also want to speak to their broker regularly.
So with regulation pending, how can advisers make sure that they stay ahead of the regulatory proposals and make sure that any changes will benefit their business? Biddle points out that the number of clients who want mortgages will not change because of regulation. ‘Be aware and be ready,’ says Biddle. ‘Look at the onset of regulation as a business project and source accurate information and guidance from the industry. Also, consider joining the new trade association ‘ The Association of Mortgage Intermediaries (AMI). Most important of all do no panic about impending regulation.’
Batchelor agrees: ‘Brokers need to keep up to date with FSA guidelines and consultations. Always continue to give best advice to clients and be efficient with record keeping and audit trails. Ensure that the business is fit and proper.’
Finally, remember the watchword; flexibility. Adopt new practices and establish new relationships with those that can help the business grow. Get networking but be prepared to adapt to change. Know the market and become an expert in it. The industry is changing and those brokers who adopt flexible working practices will reap the rewards.
Making new affiliations can open up brokerages to wider markets and attract more potential clients.
Widening the number of markets brokers operate in will be key to surviving a post-regulation environment.
Websites and technology need to be updated frequently to cope with changes in the industry.