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Brokers warned to change business models as five-year fixes return

  • 16/03/2020
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Brokers warned to change business models as five-year fixes return
The popularity of five-year fixes could cause mortgage brokers reliant on existing client banks a problem in the coming months and years.


Lenders are already feeling pressure from borrowers opting for longer term fixed rates, as the steady churn of customers looking to fix their deal every couple of years has dropped.

Last month, the Financial Conduct Authority (FCA) warned more names could follow Sainsbury’s and Tesco to exit the market in 2020 – in part, because the preference for these deals has reduced volumes.

As Mortgage Solutions previously revealed, UK Finance is expecting a dramatic fall in remortgage and product transfer lending in 2020, and it is feared brokers could suffer from this.

In the last quarter of 2019 remortgage numbers were down 2.3 per cent compared to a year earlier, according to data from UK Finance, while product transfer numbers were up by 1.4 per cent.

The changing patterns place greater emphasis on finding new avenues for business.

Aaron Strutt, product and communications director at broker Trinity Financial Group said: “It could potentially be a problem, whereas we were helping people every couple of years, now some of them are going to be gone for five years.

“You just have to concentrate on new introducers and getting more clients through the door. If you don’t, you could potentially be a bit stuck.”

Malcolm Davidson, director at broker UK Moneyman, agreed that “more traditional” brokers who work their client bank for business could find themselves under pressure.

But for advisers who are getting business through other avenues, there is not a problem.

For example, he was not worried because the firm generates enough enquiries and leads through google searches.


Transitioning to five year cycles

Brokers noted the preference for five-year fixes has already been happening for a few years.

Alex Smith senior mortgage adviser from broker Capricorn also said the change in pattern can have an impact on business.

He said: “It’s just something you have to take on the chin. It just means you have to get better at keeping in touch with clients in the longer term.

“This year I’ve had five-year clients come back; it’s gone pretty quickly when you look back on it.

“So they are already coming up for renewal. Initially you’ll have people dropping off each year, but once you’ve gone through that five-year transition, every year, in theory, you’ll have people exiting five-year products.”


Execution-only impact

However, with the FCA making execution-only easier for lenders to administer alongside better technology capabilities, brokers may want to think about how big their share of this market is going to be in the future – regardless of whether it is coming up every two or five years.

Product transfers or the easier remortgages simply are not a reliable future avenue of business and brokers would be wise to re-evaluate their business models, according to Gemma Harle, managing director of Quilter Financial Planning’s mortgage network.

She said: “The days of banking your future product transfers are going to go, the lenders will be able to do it themselves.

“Mortgage brokers need to change their model to move away from the transactional approach.”

Instead Harle (pictured) recommends a more viable business model is financial planning and looking at a customer’s overall needs to retain them for their life.

For example, she said: “Brokers should review [customers’] protection every four years, check if they’ve had family changes or job changes.”

Aligning with investment advisers could be another prudent move, Harle added.


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