Since then, evidence of direct-to-consumer developments have surfaced either in small-scale improvements such as Agreement in Principle options for customers to complete online through Yorkshire Building Society or with the promise of large scale investment from Nationwide, to boost in-branch appointment technology. The digital channel, being able to complete a mortgage online, has been highlighted as a route to watch but has its supporters and sceptics in equal measure.
Regulator holding the reins
Direct-to-consumer can mean many things, says Henry Woodcock, principle mortgage consultant for Iress. “If you are talking about a digital sales channel for execution-only mortgages, the volume of mortgages coming through this channel is constrained by regulation.” Execution-only, which does not come with advice, cannot be used for equity release, sale and rent back, Right to Buy or debt consolidation. Volumes of execution-only business need to be estimated and outlined to the regulator. If business begins to exceed these levels the lender must be able to turn the tap off.
Aside from the regulator holding the reins on execution-only, Woodcock said the practicalities of developing this type of system will put some lenders off: “There can be no leading a borrower towards a product and you can’t go out and promote the direct-only business. Customers can find it on your website but you can’t proactively alert them to it.
“The Financial Conduct Authority wants most people to take advice,” he adds.
Brokers as sounding boards
The largest threat posed by this channel is the borrower using a broker for advice who then goes on to complete the transaction themselves. Consumer research carried out by the FCA found that borrowers most confident in the process or in their ability to secure the product they wanted would go direct to the lender or use execution-only. Many borrowers said they had been put in touch with a broker through their estate agent where they had received advice and then completed the transaction themselves online.
But, says Woodcock, while lenders such as Lloyds and HSBC said last year they thought the use of digital channels would increase, it will be doing so from such a low base it will not pose a large threat to the intermediary market.
The costs involved with a digital mortgage platform aren’t purely the initial capital expenditure but the cost of the compliance risk it poses to the lender. “Lenders have to consider the potential cost of getting it wrong and being left with a fine,” says Richard Pike, director at Phoebus Software. Pike says post-MMR lenders have been much more interested in investment in intermediary systems because they prefer to rely on brokers’ experience in making a compliant sale.
Making life easy for the borrower
Technology is not likely to be successful in the purchase market because the need for advice in this sector is too great. Remortgaging is thought to be better suited to a digital channel. With the exception of borrowers remortgaging for debt consolidation, which is not allowed on an execution-only platform, switching products online is where lender technology can come into its own. Toni Smith, sales operations director at First Complete, says news of drawn-out mortgage interviews has reached consumers. “At the moment the remortgage market is depressed, partly because with rates so low and the cost of remortgaging relatively high it’s not worth it for people to then spend up to three hours getting advice.”
Smith believes that if lenders focus on developing simple technology which would allow borrowers to go online themselves and switch to a lower rate in an automated way, it would prove popular. Woodcock says these systems are more about saving the lenders money in the long term rather than stealing clients from the broker. “Typically if the borrower is staying with their existing lender they wouldn’t want to go through a broker – they’d prefer to do it themselves.”
Leeds Building Society and NatWest are the ones to watch in this area of the market. Similarly installing technology in branches to allow advisers to see borrowers remotely is more about shortening waiting times than luring in customers who would have chosen a broker.
Real threat is much closer to home
Legacy software systems have been raised as an obstacle for established lenders, posing a considerable cost and time lag for them to upgrade. This is where the challengers are considered to have the competitive advantage. So is this where the attack will come from? Are the likes of ATOM, TSB and Metro Bank the lenders which brokers should fear the most? Maria Harris, head of intermediary mortgage sales at ATOM, says that’s the wrong way of looking at it. “Technology is amazing but I don’t think it will ever replace a broker or the need for advice. It’s great for educating people on the art of the possible but where a customer wants to know what that means in the context of the whole market, that’s where a broker comes into their own.”
A side of the technology debate largely ignored by intermediaries when considering lender advancements is the threat of inertia they pose to themselves. While the component parts of a lender’s direct-to-consumer strategy may have a negligible impact on brokers’ market share, as a whole borrowers are being given multiple routes to the same bank or building society. A failure to recognise the importance of offering the borrower a way to do business with you in way which suits them, and not being visible to consumers online, will put brokers at a disadvantage.
The FCA found that consumers placed a high degree of trust in online research, such as forums, news stories and price comparison websites which have online calculators – often directing the consumer to a channel of advice. This is a point Toni Smith is hammering home to the appointed representatives in her network. “Brokers must have a bigger online presence not only to compete with the lenders but to compete with their forward-thinking intermediary competitors.”
