Property transactions have been falling for some time and, unsurprisingly, according to HMRC they fell 3.2% between March and April, with this decline likely to continue.
And insufficient housing stock pushing up property prices and a lack of accessible 95% loan to value (LTVs) mortgages on the market have made it difficult for people to move.
However, despite these factors, the opportunities for brokers to build value in mortgages are as good, if not better, than ever.
The way the intermediary market operates has changed. Fierce competition among lenders has meant paying for repeat business is quickly becoming the new norm.
Following our campaign to improve transparency in the product transfer market, nearly every lender has started to pay product transfer fees to brokers, or has announced that they intend to.
Though there are still some that need to follow suit, most lenders now pay brokers for a remortgage and product transfer. This means the size of a broker’s mortgage book is now intrinsically linked to the value of their business.
To take advantage of this, brokers must put themselves in a position to advise on a remortgage or product transfer when a client’s fixed term comes to end.
This means remembering that the job isn’t done when a mortgage is completed.
Setting up an effective contact strategy with every client is crucial. To make the most out of your back book, you shouldn’t just be getting in contact when their mortgage is reaching the end of its existing term, but should instead have regular communication with them.
On the trail
Looking ahead, trail commissions could also add to a broker’s revenue stream this year.
Though they are far from universally popular, I believe lenders should pay brokers a trail commission after an initial period of 24 months.
This would reward brokers who advise on longer term deals, such as five and ten-year fixed rates, as well as offset current account mortgages that often have longer terms.
I have long argued an additional standard rate of 40/45 basis points should be paid for the first 24 months of a product’s life, with a further 5 points commissioned each year the client stays on the lender’s books.
This form of trail commission would help create lasting value in a broker’s business and establish a steady revenue stream.
After six consecutive years of growth, lending is expected to level out this year.
But if a broker builds up a portfolio of mortgages with a mix of product transfer fees and trail commission, know when a client’s existing term is up for renewal and advise on where to place their case, they will be able to build a sustainable and successful business, even if transactions remain flat.