There is plenty of research, data and statistics to digest regarding the mortgage market – some good, some bad and some just plain ugly. On top of the Crosby Review, market research organisation Datamonitor’s latest report, The Changing UK Mortgage Intermediary Distribution Dynamics, highlights that while mortgage intermediaries remain the foremost channel of distribution, the credit crunch and resulting liquidity crisis has had a negative effect on businesses.
While there is nothing too surprising included in the report, it is important to highlight a few points. The key findings highlighted in the report were:
n The credit crunch has given rise to a levelled playing field between lenders and intermediaries. With lenders turning down an increasing number of mortgage customers, intermediaries’ priority is now about securing funding for their customers rather than trying to negotiate on reducing prices.
n Intermediaries might lose substantial revenues this year as a result of a contracting mortgage market and potential falls in commission levels offered by lenders. Consequently, a number of intermediaries would be in a vulnerable situation, which will lead to more consolidation in the indirect distribution channel.
n Current market situations are pushing a number of lenders into rethinking their distribution strategies. Therefore, intermediaries need to increase their services, strengthen their relationships with key lenders, and look for other sources of income until the market returns.
n As a result of lower lending in niche sectors such as sub-prime, self-certification and high loan-to-value, Datamonitor predicts the share of gross advances generated through intermediaries will fall slightly this year before picking up again.
Put into perspective
In years gone by there has been a growing abundance of mortgage products available to brokers, which peaked in spring of 2007 as the market was fuelled by increased competition between existing lenders and the emergence of market entrants. This battle led to the wider emergence of exclusive products as brokers found themselves in a position to offer expansive product and criteria choice.
However, well-documented global credit issues have since led to greater market consolidation as lenders have had to reasses criteria and cut back on volumes thanks to funding issues.
Lenders using the mechanism of increasing pricing and simplifying their product ranges to try and redress the balance and control volumes has meant distribution levels have dropped, with all areas of the market suffering in some form or another.
Doom and gloom
As discussed in the report, the market has experienced lower lending levels in the niche lending sectors with sub-prime taking a particular hit. Inevitably this has led to packagers, particularly pure packagers, bearing the brunt of the credit crunch.
So are packagers doomed? Unfortunately we are seeing growing numbers culling staff, streamlining their businesses and in the worst case scenario cutting their losses and ceasing to trade.
The problems facing packagers do not appear to be lessening, and mortgage intermediaries surveyed by Datamonitor confirm these suspicions. In fact, almost half (46%) highlighted packagers to be the most likely to see their presence weakened in the intermediary market during the next five years. In addition, 14% were of the opinion that brokers and intermediaries were likely to see the most impact – 8% said mortgage clubs and 6% cited networks, with 6% reporting they did not see any areas being weakened while a further 6% again were unsure.
A good club will provide a one-stop shop for intermediaries and help levy good deals and commission levels creating opportunities in areas of the market that brokers may be unaware of.
With distribution at a premium and brokers questioning their market presence it is time to knuckle down and research new markets, be they general insurance, protection, or the secured loan sector, to maximise all sales processes and look at expanding all ancillary sales opportunities. Diversification is certainly the key to survival and prosperity in the current market.
Lenders are reviewing distribution channels and while there are some positive signs emerging, a great deal of justifiable dissatisfaction remains among intermediaries about dual pricing practices. Whether this breakdown in relations between certain lenders and their distribution channels will cause long-term damage remains to be seen.
However, as angry as brokers might be, it is in their best interest as professionals to seek the best possible product for their clients. It will be difficult for brokers to ignore any lenders they might have had a previous grievance with if the lenders offer great products and high-quality service.
The challenges facing all those in the distribution sector are clear. It is important to emphasise the resilience of intermediaries – there is little doubt intermediaries will remain the major distribution channel in the UK mortgage market.
Phil Whitehouse is head of The Mortgage Alliance
