There is no money in mortgage broking and many of us are probably beginning to wonder whether it is worth staying in the mortgage business.
A new study has revealed the fact that a typical mortgage broker earns (after direct costs of fulfilment) well under the minimum wage, for facilitating one of life’s most important financial transactions. Just look at the maths. A typical consumer earning £30,000 per annum, buys a property at £120,000, pays back a total of £280,000 with interest ‘ the equivalent to spending one’s entire income for more than 10 years. Yet, in terms of the derisory fee paid by most lenders, the poor mortgage adviser earns less than the local building society cleaner.
Many readers will now be thinking that they are extremely well off and unconnected with these depressing mathematics. Let me explain the results of the study. An average loan size and procuration fee of £65,000 and 0.25% generates an income of around £165. The study found that an average case incurred £48 in administrative expenses and £95 in costs relating to the ‘face to face’ appointment and travel. Dividing the residual income between the typical eight hours of pre- and post-sales administration, reveals that brokers earn just £2.44 per hour.
So why do brokers bother? There are only two ways to make mortgage broking a lucrative pursuit in the UK. One is to charge the client a fee and the other is to sell an associated life or investment product. And, of course, that’s what we all do.
But here lies the problem. Most consumers are not ready to pay for advice, as it is not regarded as a ‘fee paid’ professional service. Sure, some successful brokers pull off fee charging with aplomb, but will it work in Scunthorpe as it does in Surbiton? Will the first-time buyer get out his chequebook when buying at £29,995, like the high net worth client spending £1m?
Many brokers have a bright future in store, despite lenders continuing to pay as little as possible for introduced mortgages. But the constitution of the broker market must change first: it is a cottage industry with some 30,000 mortgage advisers currently registered. It is clear that there is no future for small, independent operators, because of these marginal economics and in light of massively increasing regulation and competency thresholds. Strength in numbers is the future of mortgage broking. Just as IFA networks invented themselves in the early 90’s, so will mortgage networks and franchises going forward.