Speaking to Mortgage Solutions, Danny Belton (pictured), head of lender relations at L&G said the distributor has seen a jump in product transfers placed through intermediaries over 2017, and expects the trend to continue in the coming years.
“We saw a significant increase of product transfers being written by intermediaries through 2017,” said Belton.
Based on L&G figures, Belton estimated that intermediaries wrote around £10bn of product transfers in 2016, £25bn in 2017 – a figure that he said could increase to between £35bn-50bn over 2018.
The prediction chimes with recent comments from Sesame and PMS managing director Mark Graves.
Belton said that the trend is driven by lenders acknowledging the critical role of advice and a target on retention business.
“The rationale is that lenders have recognised the value of intermediaries, and have provided the propositions, the tools, and a degree of remuneration for the advice that brokers give to customers,” said Belton.
He continued: “Lenders still have the capability for customers to go direct on an execution-only basis, and that is fine and within the rules.
“Some lenders may also give advice on a specific product offering – but an intermediary will give advice across the whole of market, and make considerations such as whether any additional borrowing is needed through remortgage with another lender.
“If you went direct to lender, you wouldn’t necessarily get that advice – and certainly on an execution basis you would absolutely not.”
Moreover, the intermediary route could be a more cost-effective channel for lenders to maintain their loan books.
“If a lender has to pay a smaller proc fee than what they would for new business, then there’s a benefit,” said Belton.
He continued: “If you have a lender that typically pays a gross fee of 0.4bps on acquisition business, and 0.2bps or 0.3bps for retention business – if you lost that case to remortgage it’d cost you more to bring in a new case than it would if you retain it.”
Indeed, Belton added that L&G has anecdotally heard that some lenders have seen their retention business increase since opening their doors to intermediaries.
Tech winds
Despite the potential for advancing technology to facilitate more direct-to-consumer products, Belton said that the indispensable place of advice in the transfer process will continue to drive the intermediary’s role in the market.
“Technology is absolutely playing a part and evolving the market,” said Belton, adding that “the increased use of technology could potentially lead to a slight increase in customers feeling more confident to go down the execution-only route”.
“Ultimately, it does come down to how the consumer wants to interact,” he continued, “Are they confident based on a letter to say that’s good for me, or will they want to check with someone and get some proper advice?”
“We believe that the value of an intermediary is something that remains strong and needs to be considered because customers ultimately need the best advice they could get when it comes to their biggest asset.”
The exact size of the product switching market is difficult to measure for the lack of detailed records, though the Association of Mortgage Intermediaries (AMI) estimated the sector to be worth around £100bn a year.
“The key thing is that more customers are getting advice,” said Belton.
“But the fact is, the level of business being written by brokers is substantially increasing,” he added.
