UK Mortgage Intermediary Distribution 2006

Content

• Chapter 1 Introduction
  • What is the scope of this report?
  • Who is the target reader?
  • How to use this report
• Chapter 2 The Uk Mortgage Intermediary Market In Context
  • Introduction
  • The structure of mortgage distribution is dynamic
  • The advent of the FSA mortgage regulations has given rise to two types of regulatory status for those intermediaries advising on and selling mortgages
  • Various types of player operate in the mortgage intermediary channel
  • Intermediary size varies across the market, but the typical player is small
  • Networks have gained more power since M-Day
  • However, many networks have now ceased operation
  • The number of networks is expected to continue to fall
  • Yet AR numbers are rising
  • It is important for networks to focus on how they can survive in the long term
  • Packagers have a strong influence in niche mortgage sectors...
  • There is a variety of packagers in the mortgage market but they provide three basic functions
  • Datamonitor's Intermediary Mortgage Survey reveals that the majority of intermediaries use a packager to assist them with their business
  • ...yet there is much debate about the future of packagers
  • Datamonitor's Intermediary Survey 2006 reveals that it is unlikely that there will be major changes in the use of packagers over the next 12 months
  • Packagers will have to change their focus in the future so they can still add value to the mortgage market
  • New lenders to niche mortgage markets need packagers to be successful
  • Packagers can convert themselves into lenders
  • Another way for packagers to evolve is to form closer relationships with lenders
  • Datamonitor believes that larger and innovative packagers will succeed in the mortgage distribution channel by rising to the challenges
  • The intermediary channel is crucial to the mortgage market
  • Just over 53 per cent of all mortgage borrowers first contacted their current lender via an intermediary
  • Mortgages are complex products, which need face-to-face advice
  • While face-to-face contact is the key distribution channel its hold over the market is being eroded
  • Non face-to-face forms of direct distribution offer a low cost alternative
  • Intermediaries are becoming more and more crucial in the mortgage market
  • Intermediaries offer a number of benefits for both lenders and consumers
  • Despite a contracting mortgage market in 2005, new lending in the intermediary channel grew by 0.7 per cent to 150.8 billion
  • Sizing methodology explained
  • Intermediaries marginally grew their business in 2005
  • The increase in new mortgage lending generated via the intermediary channel is supported by the fact that the majority of intermediaries surveyed by Datamonitor felt that their business had grown in the last 12 months
  • Furthermore, intermediaries are confident that their businesses will continue to grow
  • The intermediary channel plays an even greater role in niche mortgage markets
  • Intermediaries are confident that niche mortgage markets will perform well in the future and hence they will control an even greater section of the distribution of the mortgage market
  • However, lenders should listen to intermediaries' thoughts if they want to capture a greater share of the sub-prime mortgage market
  • It is therefore essential for lenders to get their intermediary proposition right
  • Lenders need to tailor their proposition based on the various factors that influence the intermediary's choice of lender
  • Intermediaries look for lenders who are customer-focused and provide intermediaries with a good quality of service
  • Intermediaries also highly rated the fact that lenders have a wide lending criteria in order to accept the majority of their customers
  • How fast applications are processed is very important to intermediaries and many lenders are looking at improving the speed of transactions in an effort to woo them
  • A number of factors can persuade an intermediary to change lender
  • An increasing number of lenders are addressing their retention strategies in order to curb churn within the intermediary channel
  • The impressive growth of remortgaging in the UK mortgage market has, increased the importance of customer retention for lenders
  • Lenders are incentivizing intermediaries to prevent customers from remortgaging to another lender
  • However, incentive fees may go against the FSA's stand on treating customers fairly
  • There is concern that in the long term, these incentives will lead to reduced income for intermediaries
  • Meanwhile, off-balance sheet lenders will have to adopt a different strategy
  • The largest mortgage lenders continue to dominate the intermediary channel
  • Not a lot has changed in a year
  • Service is directly linked to intermediaries' choice of the most used lenders
  • Birmingham Midshires and GMAC-RFC are the leading specialists according to intermediaries
  • Birmingham Midshires is the leader in the specialist market
  • Conclusions
• Chapter 3 Regulatory Challenges In The Uk Mortgage Intermediary Market
  • Introduction
  • The FSA's reviews into the sale and advising processes of mortgage intermediaries in niche sectors have revealed a few flaws
  • The quality of advice intermediaries have been giving has come under fire
  • The FSA has raised concerns about malpractice in the self-certfication mortgage area
  • An FSA mystery shopping exercise showed that intermediaries need to improve their sales procedures and the advice they give on self-cert mortgages
  • Intermediaries interviewed believe that brokers need to improve procedures following the FSA's findings
  • The FSA has found flaws in the sub-prime market, but intermediaries have been trying to improve the quality of service they provide to customers in the sub-prime mortgage market
  • The sub-prime mortgage market is a popular area for intermediaries to operate
  • Intermediaries have introduced the necessary measures to improve the way they conduct their sub-prime business
  • The quality of advice in the equity release market is not what it should be but it is improving
  • The complexity of the equity release market, along with a negative image means that many intermediaries do not participate in the equity release market
  • Less than half of intermediaries have taken an exam relating to equity release mortgages
  • Intermediaries operating in the equity release market are confident enough to remain in the market
  • Brokers are going to have to improve the advice they give to clients
  • The mortgage intermediary channel is also facing compliance issues brought up by the use of third parties
  • Just over a third of intermediaries use a third-party consultancy for their compliance
  • Intermediaries have not necessarily been choosing third-party consultants for the right reasons
  • Using a third-party for compliance can provide complications for intermediaries
  • The FSA is getting tough on failure to meet compliance
  • Worryingly, Datamonitor's survey reveals that a significant proportion of intermediaries do not have any process in place to ensure they still have some control over their compliance procedures
  • Regulatory pressure is likely to bring about new challenges for intermediaries
  • Regulatory pressure will lead to a number of changes in the intermediary market
  • Moreover, the introduction of Home Information Packs will impose new challenges for the intermediary channel
  • The HIPs saga continues
  • Estate agents are believed to benefit the most from HIPs
  • Conclusions
• Chapter 4 Appendix
  • Supplementary data
  • Tables relating to Chapter 2: The UK mortgage intermediary market in context
  • Tables relating to Chapter 3: Regulatory challenges in the UK mortgage intermediary market
  • Definitions
  • Appointed Representative
  • Buy-to-let mortgage
  • Directly Authorized
  • Fixed rate mortgage
  • KFI
  • Mortgage club
  • Mortgage intermediary
  • Mortgage Network
  • Non-standard
  • Packager
  • Self-certification mortgage
  • Research methodology
  • Relevant readings
  • UK Mortgage Market Map
  • Key Features
  • For futher information
  • Current reports
  • European mortgage reports
  • UK mortgage reports
  • UK mortgage briefings
  • Other reports
  • Relevant links
  • Datamonitor's custom research capabilities
  • The retail banking team
• List of Tables
  • Table 1: Direct and intermediary distribution in niche mortgage markets, 2005
  • Table 2: For which mortgage sectors do you currently use the services of a packager?
  • Table 3: For which of the following reasons are you using a packager?
  • Table 4: Proportion of all mortgages according to the distribution channel of origin at the end of year, 2002 and 2005
  • Table 5: Method of first contact used by consumers to obtain their mortgage, 2002 and 2005
  • Table 6: Proportion of mortgages advanced during 2002 and 2005 split by distribution channel
  • Table 7: How do you see new business in the intermediary channel for the following mortgage sectors move in the next 12 months?
  • Table 8: How far do you agree with the following statements on the sub-prime mortgage sector?
  • Table 9: How important have the following factors been in your choice of lender?
  • Table 10: Which three factors from the following list would tempt you to offer another competitor's products more often?
  • Table 11: Gross advances for remortgaging and house purchases in the UK, 1993-2005
  • Table 12: Which three lenders do you most commonly use?
  • Table 13: Which three lenders offer the best all round service to their intermediaries?
  • Table 14: Specialist lenders most commonly used
  • Table 15: Intermediaries' opinions on the FSA mystery shopping and review into the self-certification sector, 2006
  • Table 16: The changes intermediaries have made to their sub-prime businesses, 2006
  • Table 17: What major factor has influenced you in choosing your external consultant?
  • Table 18: What measures do you have in place to ensure that you have a hands on approach on the compliance of your firm?
• List of Figures
  • Figure 1: A conceptual illustration of distribution in the UK mortgage market, 2006
  • Figure 2: Most intermediaries have a customer base of up to 1,000, 2006
  • Figure 3: The mortgage intermediary market is populated by a large number of relatively small entities, along with a small number of very large players, 2006
  • Figure 4: Network Data is by far the major network in the UK, October 2006
  • Figure 5: The majority of intermediaries surveyed use a packager, 2006
  • Figure 6: Packagers are mostly used for sub-prime mortgages, 2006
  • Figure 7: The most common reason for which intermediaries use a packager is to give their clients more product options, 2006
  • Figure 8: Only just over a third of intermediaries using packagers are planning to give more business to packagers in the coming year, 2006
  • Figure 9: Packagers are generally not that appealing to intermediaries that do not already use their services, 2006
  • Figure 10: Intermediaries have a split opinion on the future of the packager market, 2006
  • Figure 11: Advantage offers a range of mortgage options, 2006
  • Figure 12: Over half of all mortgage loans as at the end of 2005 were distributed through the intermediary channel , 2002 and 2005
  • Figure 13: While the majority of mortgage customers made their first approach to a lender by face-to-face contact, more and more are using the phone to make contact, 2002 and 2005
  • Figure 14: The proportion of borrowers using intermediaries has increased over the last four years, 2002 and 2005
  • Figure 15: New lending via intermediaries increased by 0.7 per cent in a contracting mortgage market to account for 150.8 billion in 2005, 2004-2005
  • Figure 16: The majority of intermediaries thought that over the past twelve months their business had grown, 2006
  • Figure 17: The majority of intermediaries surveyed expect their businesses to grow over the next twelve months, 2006
  • Figure 18: Intermediaries expect all niche mortgage markets to grow over the next 12 months with the sub-prime and equity release sectors expected to witness the fastest growth, 2006
  • Figure 19: Intermediaries feel that lenders in the sub-prime sector should be more flexible about their processes and products, 2006
  • Figure 20: The pricing of products is very important for lenders when it comes to choosing a lender, 2006
  • Figure 21: Intermediaries' opinion on whether lenders have changed their lending criteria is mixed, 2006
  • Figure 22: GMAC-RFC provides intermediaries with a comprehensive guide to its POS system, 2006
  • Figure 23: Edeus has an online demonstration of its POS intermediary technology, 2006
  • Figure 24: Lenders that offer better rates are the most likely to attract intermediaries away from other lenders, 2006
  • Figure 25: Remortgaging has grown in importance to the mortgage market over the last decade, 1993-2005
  • Figure 26: Halifax and Abbey are the most commonly used lenders by intermediaries, 2006
  • Figure 27: Birmingham Midshires, Halifax and GMAC-RFC are the best providers of service according to intermediaries, 2006
  • Figure 28: Birmingham Midshires is the most popular lender among intermediaries, 2006
  • Figure 29: The majority of intermediaries advise on mortgages on a self-certification basis, 2006
  • Figure 30: Intermediaries believe that they need to improve many aspects in the way self-certification mortgages are sold, 2006
  • Figure 31: The majority of intermediaries advise on mortgages on a sub-prime basis, 2006
  • Figure 32: Most intermediaries have made an effort to improve the way in which their sub-prime business is conducted, 2006
  • Figure 33: The majority of intermediaries do not advise on equity release products, 2006
  • Figure 34: Just over half of intermediaries who advise on equity release schemes have not taken any equity release-specific exam, 2006
  • Figure 35: The large majority of brokers operating in the equity release market plan to continue to operate in this market going forward, 2006
  • Figure 36: While the majority of intermediaries do not use an outside compliance consultant, a significant proportion does outsource their compliance processes, 2006
  • Figure 37: A number of factors influence Intermediaries in choosing a particular third-party compliance consultant, 2006
  • Figure 38: Meetings are used by the majority of intermediaries to ensure they still have a hands-on approach to their compliance procedures, 2006
  • Figure 39: 60 per cent of intermediaries interviewed believe that HIPs will offer the most opportunities to estate agents, May 2006
  • Figure 40: The UK Mortgage Market Map covers a wide range of mortgage sectors
  • Figure 41: Mortgage sectors covered within the UK Mortgage Market Map
  • Figure 42: Datamonitor's core consulting capabilities