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Mortgage Intermediaries - UK - May 2010

  • Around a fifth of mortgage advisers believe that customers turning to online sources of information is a major challenge for the industry. A year ago only 11% of advisers highlighted this as an issue.
  • A third of mortgage holders and prospective borrowers would only arrange a mortgage after taking advice, but a fifth are confident enough arrange their mortgage independently.
  • Cost-cutting and business diversification remain the top priorities for mortgage advice firms, but there are some signs of improved business confidence. Cost cutting has moved down the agenda, while the proportion of advisers prioritising marketing activity has increased.
  • Almost three fifths of intermediaries do not feel supported by lenders and nearly two thirds feel that lenders do not treat brokers fairly. Mintel’s research suggests that dual pricing by lenders is a major source of irritation among mortgage intermediaries.
  • Since the start of 2010 there has been a noticeable reduction in the number of mortgage advisers who are critical of the lender/intermediary relationship. Improvements to lender and product communication appear to be helping this situation.
  • Research into the potential impact of the Mortgage Market Review reveals that intermediaries are most concerned about the impact of proposals to introduce more rigorous affordability assessments and income verification.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Definitions
          • Abbreviations
          • Future Opportunities

            • Diversification beyond mortgages
              • Neutral locations could be a good source of business
              • Market in Brief

                • Mortgage advice firms continue to struggle
                  • Figure 1: Number of mortgage and home finance firms, January 2006-March 2010
                • Mortgage lending falls sharply in 2009
                  • Figure 2: Total gross advances (not seasonally adjusted), 2001-10
                • Funding and product availability continue to be major challenges
                  • Mortgage intermediary share falls to 55%
                    • Figure 3: Proportional distribution of regulated mortgage sales, by channel, 2006/07-2009/10
                  • Mortgage marker faces increased regulatory scrutiny
                    • The consumer appetite for mortgage advice
                      • Figure 4: Agreement with statements about arranging/choosing a mortgage, December 2009
                    • A shift in the challenges faced by intermediaries
                      • Figure 5: Main challenges currently facing mortgage intermediaries, March 2009 and March 2010
                    • Business priorities also reflect a changed environment
                      • Figure 6: Mortgage intermediary priorities over the next six months, March 2009 and March 2010
                    • The intermediary/lender relationship
                    • Internal Market Environment

                      • Key points
                        • Sharp fall in mortgage product availability hits intermediary sector
                          • Figure 7: TrigoldCrystal Product Index, average number of intermediary products available, April 2007-March 2010
                        • Fears over the mortgage funding gap
                          • Funding gap places greater pressure on intermediaries
                            • Low bank rates help to cushion homeowners from the recession…
                              • Figure 8: Bank of England base rate, three-month (monthly average) LIBOR and new mortgages effective rate, January 2004-February 2010
                            • …but have undermined remortgage activity
                              • Mortgage approvals begin to rise
                                • Figure 9: Number of monthly mortgage approvals (seasonally adjusted), by type, March 2008-March 2010
                            • Broader Market Environment

                              • Key points
                                • Consumer confidence is on the up…
                                  • Figure 10: Monthly, three-monthly and 12-monthly UK consumer confidence indices*, January
                                • …but is not translating to improved mortgage intentions
                                  • Figure 11: Expected mortgage and property purchase activity, Q3/Q4 2002-Q1/Q2 2010
                                • Most people believe that the decline in house prices is over
                                  • Figure 12: Expected house price movement over the next year, December 2009
                                • Property transactions show an upward trend in 2009
                                  • Figure 13: Number of UK residential property transactions with a value of £40,000 upwards – seasonally adjusted, Q2 2005-Q1 2010
                                • Property prices rebound in 2009
                                  • Figure 14: Annual change in UK house prices – comparison of four sources, Q1 2004-Q4 2009
                                • Arrears cases begin to recede
                                  • Figure 15: Number of residential loan accounts to individuals in arrears, Q3 2008-Q4 2009
                              • Regulatory Landscape

                                • Key points
                                  • The Mortgage Market Review
                                    • Intermediary implications and impact
                                      • Tackling mortgage fraud
                                        • Second charge and BTL regulation
                                          • RDR read-across ruled out…
                                            • …but new advice labels are likely to be implemented
                                              • Impact of the RDR on the mortgage sector
                                                • OFT recommends rules on estate agent referrals
                                                  • Mortgage intermediaries suffer FSA fee hike
                                                  • Competitive Context – The Direct Threat

                                                    • Key points
                                                      • Direct products account for around a third of the mortgage market
                                                        • Figure 16: Proportion of intermediary and direct mortgage products, April 2009-March 2010
                                                      • Lenders use bundled product deals to boost appeal of direct channels
                                                        • 90% of intermediary sales made on an advised basis
                                                          • Figure 17: Advised sales, by selling channels, April 2008-March 2009
                                                      • Recent Market Developments

                                                        • Key points
                                                          • Consolidation in the intermediary market
                                                            • High-profile business failures undermine confidence
                                                              • Merger and acquisitions activity
                                                                • New lenders on the horizon
                                                                  • Credit scoring headache
                                                                    • Smaller lenders take a more personal approach
                                                                      • Embracing technology to attract consumers
                                                                        • Online tools to provide brokers with a competitive edge
                                                                        • SWOT Analysis

                                                                            • Figure 18: SWOT analysis for the mortgage intermediary market, 2010
                                                                        • Lending Market Overview

                                                                          • Key points
                                                                            • Mortgage lending falls by 44% in 2009
                                                                              • Figure 19: Total mortgage lending, by gross and net advances (not seasonally adjusted), 2001-10
                                                                            • Remortgage market declines sharply
                                                                              • Figure 20: Gross mortgage lending, by type of loan, 2004-09
                                                                            • Slight improvement in FTB activity
                                                                              • Figure 21: Loans advanced for house purchase, by type of borrower, 2004-09
                                                                            • Buy-to-let market fell by almost 70% in 2009
                                                                              • Figure 22: Number and value of new BTL mortgages sold, 2003-09
                                                                          • Trade Perspective

                                                                              • Participating companies
                                                                                • Challenges facing the intermediary sector
                                                                                  • The intermediary/lender relationship
                                                                                    • The online threat
                                                                                      • The Mortgage Market Review
                                                                                        • Expectations and outlook for 2010
                                                                                        • Intermediary Share of Mortgage Market

                                                                                          • Key points
                                                                                            • Mortgage intermediary share falls to 55% in 2009
                                                                                              • Figure 23: Proportional distribution of regulated mortgage sales, by channel, 2006/07-2009/10
                                                                                            • Looking forward – prospects for 2010
                                                                                              • Happier times – pre-credit crisis
                                                                                              • Mortgage Intermediary Marketplace

                                                                                                • Key points
                                                                                                  • Mortgage advice firm numbers have fallen by 35% since the end of 2007
                                                                                                    • Figure 24: Number of mortgage and home finance firms, January 2006-March 2010
                                                                                                  • A sharp fall in mortgage advice firm numbers during 2009
                                                                                                    • Figure 25: Number of mortgage and other home finance ARs and DA intermediary firms, by type, March 2007-March 2010
                                                                                                  • The DA vs AR question
                                                                                                  • Key Players – Intermediary Mortgage Lenders

                                                                                                    • Key points
                                                                                                      • Lloyds Banking Group and Santander are the top intermediary lenders
                                                                                                        • Figure 26: Mortgage market share, by overall gross lending and intermediary share of the market, 2009
                                                                                                      • Building societies and specialist lenders lose share
                                                                                                        • Figure 27: Gross mortgage lending, by type of lender (not seasonally adjusted), 2004-09
                                                                                                    • Key Players – Intermediaries

                                                                                                        • Sesame Bankhall Group
                                                                                                          • Legal & General
                                                                                                            • Openwork
                                                                                                              • Personal Touch Financial Services
                                                                                                              • Brand Communication and Promotion

                                                                                                                • Key points
                                                                                                                  • Advertising financial advice to consumers
                                                                                                                    • Financial advice advertising falls sharply in 2009
                                                                                                                      • Figure 28: Advertising expenditure for financial advice services, 2007-09
                                                                                                                    • Advertising to mortgage intermediaries
                                                                                                                      • Mortgage intermediary adspend falls to 3% of 2007 total
                                                                                                                        • Figure 29: Amount spent on advertising in the mortgage intermediary sector, 2006-09
                                                                                                                      • Exact Mortgage Experts was top advertiser in 2009
                                                                                                                        • Figure 30: Top ten advertisers in the mortgage intermediary market, 2007-09
                                                                                                                    • The Consumer – Attitudes towards Mortgage Advice

                                                                                                                      • Key points
                                                                                                                        • The growing influence of the internet
                                                                                                                          • Figure 31: Agreement with statements about arranging/choosing a mortgage, by gender and socio-economic group, December 2009
                                                                                                                        • The appetite for advice is closely linked to age
                                                                                                                          • Figure 32: Agreement with statements about arranging/choosing a mortgage, by age, December 2009
                                                                                                                        • Advice is on the agenda for potential borrowers
                                                                                                                          • Figure 33: Agreement with statements about arranging/choosing a mortgage, December 2009
                                                                                                                      • Mortgage Adviser Research – Business Confidence

                                                                                                                        • Key points
                                                                                                                          • Business confidence is showing signs of improvement…
                                                                                                                            • Figure 34: Business confidence for the next six months, April 2009-March 2010
                                                                                                                          • …but remains fragile
                                                                                                                            • Obtaining a competitive rate continues to be challenging
                                                                                                                              • Figure 35: Proportion of clients intermediaries expect to obtain a better rate for, April 2009-March 2010
                                                                                                                          • Mortgage Adviser Research – Intermediary Challenges and Priorities

                                                                                                                            • Key points
                                                                                                                              • A shift in the challenges faced by intermediaries
                                                                                                                                • Figure 36: Main challenges currently facing mortgage intermediaries, March 2009 and March 2010
                                                                                                                              • Concern about direct competition moves up the agenda
                                                                                                                                • Regulatory concerns also increase
                                                                                                                                  • The online threat is increasing
                                                                                                                                    • Cross-sale opportunities are the main focus for the next six months
                                                                                                                                      • Figure 37: Mortgage intermediary priorities over the next six months, March 2009 and March 2010
                                                                                                                                    • Signs of improvements in confidence
                                                                                                                                    • Mortgage Adviser Research – Perspective on Lenders

                                                                                                                                      • Key points
                                                                                                                                        • Most advisers do not feel supported by lenders
                                                                                                                                          • Figure 38: Agreement with the statement that lenders are supporting intermediaries, April 2009-March 2010
                                                                                                                                        • Treating brokers fairly remains a sore subject
                                                                                                                                          • Figure 39: Agreement with the statement that lenders are treating brokers fairly, April 2009-March 2010
                                                                                                                                        • Lender communication is getting better
                                                                                                                                          • Figure 40: Agreement with the statement that lenders are keeping advisers informed on changes within the market, April 2009-March 2010
                                                                                                                                        • Product communication is less of a concern
                                                                                                                                          • Figure 41: Agreement with the statement that lenders are providing sufficient notice before adding/ removing rates /products, April 2009-March 2010
                                                                                                                                        • Managing business volumes
                                                                                                                                          • Figure 42: Agreement with the statement that lenders are responsibly managing business volumes, April 2009-March 2010
                                                                                                                                      • Mortgage Adviser Research – Perspective on the Mortgage Market Review

                                                                                                                                        • Key points
                                                                                                                                          • Affordability and income verification proposals concern intermediaries…
                                                                                                                                            • Figure 43: Assessment of the impact of selected proposals from the Mortgage Market Review on the intermediary sector, March 2010
                                                                                                                                          • …but there is greater support for extension of Approved Person regime
                                                                                                                                          • Appendix – Market Background

                                                                                                                                            • Overview of complex mortgage distribution structure
                                                                                                                                              • Figure 44: Overview of distribution channels within the mortgage marketplace since mortgage regulation
                                                                                                                                            • Different types of mortgage advisers

                                                                                                                                            Companies Covered

                                                                                                                                            • Abbey
                                                                                                                                            • Alliance & Leicester
                                                                                                                                            • Association of Mortgage Intermediaries
                                                                                                                                            • Bank of England
                                                                                                                                            • Barclays Bank plc
                                                                                                                                            • Birmingham Midshires
                                                                                                                                            • Bristol & West
                                                                                                                                            • Cheltenham & Gloucester plc
                                                                                                                                            • Co-operative Group
                                                                                                                                            • Council of Mortgage Lenders
                                                                                                                                            • Coventry Building Society
                                                                                                                                            • Financial Services Authority (The)
                                                                                                                                            • Friends Provident plc
                                                                                                                                            • Gfk NOP
                                                                                                                                            • Grupo Santander Central Hispano S.A.
                                                                                                                                            • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                            • HM Revenue & Customs
                                                                                                                                            • Homeloan Management Ltd
                                                                                                                                            • HSBC Private Bank (UK) Limited
                                                                                                                                            • ING Direct
                                                                                                                                            • John Gilbert Financial Research
                                                                                                                                            • Legal & General Group PLC
                                                                                                                                            • Lloyds Banking Group
                                                                                                                                            • Mortgage Express
                                                                                                                                            • Nationwide Building Society
                                                                                                                                            • NatWest
                                                                                                                                            • Northern Rock plc
                                                                                                                                            • Norwich Union
                                                                                                                                            • Office of Fair Trading
                                                                                                                                            • Outdoor Advertising Association of Great Britain
                                                                                                                                            • Royal Bank of Scotland Group plc
                                                                                                                                            • Stroud & Swindon Building Society
                                                                                                                                            • UCB Home Loans
                                                                                                                                            • Virgin Money
                                                                                                                                            • Zurich Financial Services

                                                                                                                                            Mortgage Intermediaries - UK - May 2010

                                                                                                                                            £1,995.00 (Excl.Tax)