UK Mortgage Intermediary Distribution 2007 (Distribution Dynamics)

Content

• Overview
• Catalyst
• Summary
• Executive Summary
  • Various types of player participate in the mortgage distribution arena
  • Lead generators have recently joined the intermediary channel
  • Networks: the credit crunch is creating a more leveled field between networks and lenders
  • Packagers: is the future of packagers doomed?
  • Mortgage intermediaries surveyed by Datamonitor believe that packagers are most likely to see their presence weaken in the intermediary channel
  • The intermediary mortgage channel now accounts for the lion's share of gross lending
  • A number of drivers are behind the growth of the intermediary channel
  • The majority of intermediaries surveyed have seen an increase in their business in 2007
  • There are a number of reasons for the increasing popularity of the intermediary channel among consumers
  • Intermediaries also offer advantages to lenders
  • Lenders must tailor their products and services to intermediaries' needs to gain share
  • Intermediaries look for specific factors when choosing which lender to recommend to their customers
  • Challenges and issues in the UK intermediary mortgage distribution channel
  • Current liquidity issues are creating a more challenging market for mortgage intermediaries
  • Mortgage intermediaries' businesses will be adversely affected in current market conditions
  • An Introduction to Mortgage Intermediary Distribution in the UK
  • Various types of players participate in the mortgage distribution arena
  • Two types of regulatory status exist for those intermediaries advising on and selling mortgages
  • Various types of players operate in the mortgage intermediary channel
  • Lead generators have recently joined the intermediary channel
  • Intermediary size varies across the market, but the typical player is small
  • Networks: the credit crunch is creating a more leveling field between networks and lenders
  • The credit crunch has brought about new dynamics for networks
  • A more challenging market will lead to more network consolidation
  • Given current trading conditions, networks need to focus on critical success factors
  • Packagers: is the future of packagers doomed?
  • The future of packagers has been a much debated topic for a long time
  • What can packagers do to survive in such difficult trading conditions?
  • The intermediary mortgage channel now accounts for the lion's share of gross lending
  • Surprisingly, latest Ipsos MORI data highlights that direct channels occupy a greater share of mortgage distribution than indirect channels
• Analysis of Distribution of New Mortgages Highlights A Similar Trend
  • However, further research reveals that mortgage intermediaries remain the major distribution channel, generating roughly 65% of gross lending in 2007
  • Mortgage lenders interviewed by Datamonitor believe that the intermediary channel generates 65% of total mortgages
  • Whether going via an intermediary or through a branch, face-to-face remains the preferred initial contact method for mortgage borrowers
  • However, more consumers are willing to use remote methods for initial contact
  • Lenders generally have a good distribution mix in order to maximize customer acquisition
  • A number of drivers are behind the growth of the intermediary channel
  • The majority of intermediaries surveyed have seen an increase in their business in 2007
  • There are a number of reasons for the increasing popularity of the intermediary channel among consumers
  • Intermediaries also offer advantages to lenders
  • but there are a few drawbacks for lenders from using intermediaries
  • at the time of the survey, the majority of intermediaries believed that their business will continue to grow in 2008
  • Lenders must tailor their products and services to intermediaries' needs to gain share
  • Intermediaries look for specific factors when choosing which lender to recommend to their customers
  • Intermediaries also favor lenders offering a wide lending criteria
  • Speedy application processes and online technological tools remain very important to intermediaries
  • Intermediaries' income continues to be the lowest rated factor
  • A number of factors can persuade an intermediary to change lender
  • Better pricing and product features are strong motivators to intermediaries for switching lenders
  • Slow decision making and poor service by lenders act as deterrents to intermediaries
  • The largest mortgage lenders continue to dominate the intermediary channel
  • Abbey and Halifax were the most popular lenders for prime lending among intermediaries surveyed
  • GMAC-RFC and Kensington were the most popular sub-prime lenders among the sample of intermediaries
  • Challenges and Issues in the UK Intermediary Mortgage Distribution Channel
  • Current liquidity issues are creating a more challenging market for mortgage intermediaries
  • Gross mortgage lending in H1 2007 reached new peaks
  • H2 2007 was marred by liquidity issues
  • The current liquidity crisis has forced mortgage lenders to decrease lending to certain customer segments
  • Mortgage intermediaries' businesses will be adversely affected in current market conditions
  • Intermediaries need to look for other sources of revenue until the market returns
  • A number of other challenges are awaiting intermediaries ahead
  • Lenders pulling away from broker distribution is the major concern for intermediaries
  • Falling commission is the next major concern for intermediaries
  • The majority of brokers receive a commission falling between 0.26% and 0.50% of the value of the loan advanced on prime mortgage business
  • 53% of intermediaries are satisfied with their commission levels
  • More than a quarter of intermediaries surveyed believed that commission levels will fall over 2008
  • Incentives other than proc fees are unlikely to become a regular feature of intermediaries' remuneration
  • Trail commissions remain nonexistent in the UK mortgage market
  • Almost a third of the sample stated they are concerned about a house price crash
  • More intermediaries are worried about increased European mortgage regulation than increased scrutiny from the FSA
• Appendix
  • Supplementary data
  • Tables relating to Chapter 2: An Introduction to Mortgage Intermediary Distribution in the UK
  • Definitions
  • Appointed representative
  • Buy-to-let mortgage
  • Directly authorized
  • Fixed rate mortgage
  • Mortgage club
  • Mortgage intermediary
  • Mortgage network
  • Non-standard
  • Sub-prime
  • Packager
  • Self-certification mortgage
  • Methodology
  • Further reading
  • Ask the analyst
  • Datamonitor consulting
  • Disclaimer
• List of Tables
  • Table 1: Gross lending of top 15 mortgage lenders generated via the intermediary channel in 2006
  • Table 2: Gross lending of top 15 mortgage lenders generated via the intermediary channel in 2006
  • Table 3: Total UK intermediary gross advances share estimates by a sample of mortgage lenders
  • Table 4: 2006 distribution mix of gross lending for a sample of major mainstream lenders and specialist lenders
  • Table 5: What is your approximate customer base size?
  • Table 6: Largest mortgage networks in the UK, February 2008
  • Table 7: Which one of the following intermediary player groups is more likely to strengthen their presence in the mortgage intermediary market in the next five years?
  • Table 8: Which one of the following intermediary player groups is more likely to see their presence in the mortgage Intermediary market weaken in the next five years?
  • Table 9: How did you first approach or make contact with your current mortgage lender? (Base = all sample)
  • Table 10: How did you first approach or make contact with your current mortgage lender? (Base = all new mortgages at year shown)
  • Table 11: and which one of the following best describes how you made your initial approach when arranging this mortgage?
  • Table 12: Thinking about your mortgage business, how do you feel it has changed in the last 12 months?
  • Table 13: According to you, who 'owns' the customer?
  • Table 14: and how do you expect your mortgage business to grow over the next twelve months?
  • Table 15: Importance of various factors to intermediaries when choosing a lender
  • Table 16: Which three factors from the following list would tempt you offer another competitor's products more often?
  • Table 17: Which three factors of the following list are most likely to make you very reluctant to do business with a lender again?
  • Table 18: Which three mainstream lenders do you most commonly use?
  • Table 19: Which three sub-prime lenders do you most commonly use?
  • Table 20: UK monthly gross mortgage advances, 2006-07, January-June, (m)
  • Table 21: Forecasts of intermediary share of gross advances
  • Table 22: How concerned are you about the following issues?
  • Table 23: Monthly house price index (Seasonally adjusted), January 2007-March 2008
  • Table 24: What is your average commission in terms of % of loan advance?
  • Table 25: How satisfied are you with your current commission levels?
  • Table 26: Do you expect commissions to increase, decrease or stay the same in the next 12 months?
  • Table 27: Have you seen an increase in incentives (such as cases of wine) offered by lenders?
  • Table 28: Do you expect lenders' incentives to become a regular feature of brokers' remuneration in the near future?
• List of Figures
  • Figure 1: A conceptual illustration of distribution in the UK mortgage market, 2008
  • Figure 2: 46% of mortgage intermediaries surveyed believe that packagers' presence in this channel is most likely to weaken over the next five years
  • Figure 3: 57% of intermediaries have witnessed an increase in their mortgage business over the last 12 months
  • Figure 4: Product characteristics that meet the needs of customers and competitive product pricing are the most important factors for intermediaries
  • Figure 5: The UK mortgage market has been slowing since November 2007
  • Figure 6: Intermediaries are facing a significant fall in revenues in 2008 due to significantly lower mortgage lending
  • Figure 7: A conceptual illustration of distribution in the UK mortgage market, 2008
  • Figure 8: The majority of intermediaries surveyed have fewer than 500 customers
  • Figure 9: The sample of intermediaries was dominated by a large number of smaller players each arranging a small number of mortgages
  • Figure 10: Mortgage times Group has overtaken Network Data as the biggest mortgage network in terms of appointed representatives, February 2008
  • Figure 11: Only 19% of intermediaries surveyed believed that networks are more likely to strengthen their presence in the intermediary channel in the next five years
  • Figure 12: 46% of mortgage intermediaries surveyed believed that packagers' presence in this channel is most likely to weaken over the next five years
  • Figure 13: Ipsos MORI data highlights that 40% of all mortgages were generated via indirect channels at the end of 2007
  • Figure 14: According to Ipsos MORI data, distribution of new mortgages in 2007 was fairly divided between direct and indirect channels
  • Figure 15: A higher proportion of customers in 2007 used the internet and phone channels to make initial contact when arranging their mortgage than in 2006
  • Figure 16: 57% of intermediaries have witnessed an increase in their mortgage business over the last 12 months
  • Figure 17: While 68% of intermediaries surveyed believed that the client introduced belongs to the mortgage broker, a significant 30% stated that the client belongs to both the broker and the lender
  • Figure 18: at the time of the survey in September 2007, 15% of intermediaries believed that their business will decline over 2008
  • Figure 19: Product characteristics that meet the needs of customers and competitive product pricing are the most important factors for intermediaries
  • Figure 20: GMAC-RFC offers a 'Call me back' service to intermediaries, March 2008
  • Figure 21: Better rates and product features remain the major drivers for intermediaries to switch to another lender
  • Figure 22: Slow decision making on lenders' part is the major factor in making intermediaries reluctant to work with a particular lender again
  • Figure 23: Abbey and Halifax are the most commonly used mainstream lenders among the sample of intermediaries
  • Figure 24: GMAC-RFC and Kensington were the most commonly used sub-prime lenders among the sample of intermediaries
  • Figure 25: UK gross mortgage lending in the first six months of 2007 outperformed 2006 levels
  • Figure 26: The UK mortgage market has been slowing since November 2007
  • Figure 27: Intermediaries are facing a significant fall in revenues in 2008 due to significantly lower mortgage lending
  • Figure 28: The majority of intermediaries surveyed were concerned about mortgage lenders looking to pull away from broker distribution
  • Figure 29: The majority of brokers receive a commission falling between 0.26% and 0.50% of the value of the loan advanced on prime mortgage business
  • Figure 30: The majority of intermediaries are satisfied with their commission levels
  • Figure 31: More than a quarter of intermediaries surveyed believed that commission levels will fall over 2008
  • Figure 32: Intermediaries believe that non-commission incentives will not become a regular feature of brokers' remuneration in the future
  • Figure 33: House prices have been falling in the past few months