Q: customers often ask me about direct-only products from lenders like Tesco, what is the view of the market about recommending these products, especially when it means missing out on commission?
A: Some lenders – such as HSBC, First Direct and Britannia – will only sell mortgages directly to end-customers, not via intermediaries. Their business model does not depend on getting a slice of business from introducers, even though about half of all UK mortgages are introduced by intermediaries.
So what does an intermediary do if a direct-only lender comes up in conversation with a client? This is something that we at BDRC Continental have been measuring in our surveys of mortgage intermediaries since 2010.
Some intermediaries aim to stop the problem at source. Last year, two-in-five mortgage intermediaries (43%) told us that they suppress direct-only deals on their sourcing system. But this is only half the conversation: clients themselves may ask about direct-only deals. Then what?
We have found that most intermediaries will recommend direct-only deals, at least occasionally, despite foregoing the typical £500-600 procuration fee paid by lenders for an average sized mainstream deal.
Last year, almost two-in-three mortgage intermediaries (64%) said they recommended direct-only deals at least ‘sometimes’. In 2010 and 2011 the result was even higher, approaching 3 in 4 (72%) in both years.
By far the most common reason for recommending a direct-only deal is ‘if it is the best advice / deal for the client’ (71%). Other reasons include: if there is no alternative (17%), to retain a key client (8%) or ‘if a client asks me’ (6%).
So, it may seem counter intuitive at first, but most intermediaries have strong ethical reasons for sometimes recommending direct-only lenders. Looked at broadly, it also makes sense from a business point of view.
While foregoing a procuration fee is painful, most intermediaries charge clients an arrangement fee, so they will receive some remuneration for placing a deal with a direct-only lender. More importantly, most intermediaries want a long-term relationship with their customers and there is real lifetime value in building trust by being seen to put the client’s interests first.
With growing trust, prospects for repeat purchase and recommendation will increase, leading to stronger organic business growth. And, ultimately, that is the prize that the wise, commercially minded intermediary wants.