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Mortgage Intermediary Focus - UK - May 2012

“Mortgage intermediaries are set to face yet more challenges over the next few years. The current mortgage market environment is lacklustre although there is positivity to be found in its increasing stability. The threat from direct sales is set to adversely affect the intermediary business in the short-term. Moreover, the need to be compliant with regulatory changes will only serve to further test many intermediary businesses to their limit. In order to survive this difficult period, intermediaries must show that they offer an invaluable service to the mortgage market and focus on areas such as buy-to-let in the near-term.”

– Stephanie Seenan – Financial Services Analyst

Some questions answered in this report include:

  • Will the increase in direct sales pose a serious threat to intermediaries?
  • Increasing regulation – friend or foe?
  • What can intermediaries do to secure their position in the market?
  • Will Buy-to-Let be the saviour of mortgage intermediaries?
  • How can the relationship between lenders and intermediaries be improved?

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Table of contents

  1. Introduction

      • Market definitions
        • Abbreviations
        • Executive Summary

            • The market
              • Figure 1: Forecast of gross mortgage advances, 2006-16
            • Proportion of intermediary products expected to decline further
              • Figure 2: Proportional distribution of regulated mortgage sales, by channel, 2006/07-2010/11
            • Market factors
              • Hopes of an increase in intermediary product numbers dashed
                • Figure 3: TrigoldCrystal Product Index, average number of intermediary products available, April 2007-February 2012
              • Regulation is hot topic for mortgage intermediaries
                • Consumer confidence and buying intentions fall
                  • Companies and key players
                    • The number of mortgage advisers continues to decrease
                      • Figure 4: Number of mortgage and home finance firms, January 2006-December 2011
                    • The bigger intermediary businesses are in a safer survival position
                      • The adviser
                        • Competition from direct products is the biggest challenge facing intermediaries
                          • Figure 5: Biggest challenges currently facing mortgage intermediaries, March 2012
                        • Increasing marketing activity is the top priority for intermediaries
                          • Figure 6: Main intermediary priorities for next six months, March 2012
                        • The threat from direct sales is increasing
                          • Figure 7: Threat from direct sales, March 2012
                        • Mortgage intermediaries are struggling to help some clients….
                          • Figure 8: Proportion of clients intermediaries unable to assist, March 2012
                        • … with affordability issues and maximum LTV being reached responsible
                          • Figure 9: Main reasons that intermediaries are unable to assist clients, March 2012
                        • What we think
                        • Issues in the Market

                            • Will the increase in direct sales pose a serious threat to intermediaries?
                              • Increasing regulation – friend or foe?
                                • What can intermediaries do to secure their position in the market?
                                  • Will Buy-to-Let be the saviour of mortgage intermediaries?
                                    • How can the relationship between lenders and intermediaries be improved?
                                    • Future Opportunities

                                      • Mortgage intermediaries can guide applicants through the mortgage maze
                                        • Relationship building and cross-selling are the key to intermediary survival
                                        • Internal Market Environment

                                          • Key points
                                            • Bank of England base rate remains low but SVR mortgages are no longer falling in line
                                              • Figure 10: Bank of England base rate, three-month (monthly average) LIBOR and new mortgages effective rate, January 2005-February 2012
                                            • Number of intermediary products remains low
                                              • Figure 11: TrigoldCrystal Product Index, average number of intermediary products available, April 2007-February 2012
                                            • Number of monthly mortgage approvals
                                              • Figure 12: Number of monthly mortgage approvals (seasonally adjusted), by type, January 2009-January 2012
                                            • Number of direct mortgage products on the up
                                              • Figure 13: Trigold crystal product index, average number of direct products available, April 2009-February 2012
                                            • Mortgage switching levels
                                              • Figure 14: Proportion of mortgage-holders who have changed mortgage provider in the past 12 months, 2007-11
                                            • Repossession rates increased slightly in 2011
                                              • Figure 15: Mortgage arrears and repossessions, Q1 2008-Q3 2011
                                            • MMR will lead to fewer mortgages and higher costs
                                              • Changes to the mortgages being sold
                                                • Growing market for buy-to-let
                                                  • Figure 16: Annual percentage change in gross advances – buy-to-let versus total mortgage market, 2002-11
                                                • 2011 saw an increase in demand for BTL
                                                  • Figure 17: Demand for buy-to-let and prime lending (house purchase), Q1 2008-Q4 2011
                                                • Government scheme to help buying – NewBuy scheme
                                                • Broader Market Environment

                                                  • Key points
                                                    • Low level of consumer confidence is hindering the property market recovery
                                                      • Figure 18: GfK NOP Consumer Confidence Index, January 1988-December 2011
                                                    • Consumers are dubious about their ability to find a new mortgage
                                                      • Falling housing market intentions show that people lack confidence in the property market…
                                                        • Figure 19: Expected mortgage and property purchase activity, Q3/Q4 2002-Q3/Q4 2011
                                                      • ... yet property as a long-term investment is very much valued
                                                        • Figure 20: Attitudes towards mortgages, January 2012
                                                      • Property prices set to remain low
                                                        • Figure 21: Annual house price growth in the UK – comparison of four different sources, Q1 2005-Q3 2011
                                                      • Property prices expected to remain stagnant over the next 12 months
                                                        • Figure 22: Property price expectations over the next 12 months, January 2012
                                                    • Regulatory Context

                                                      • Key points
                                                        • General intermediary view of regulation
                                                          • Mortgage Market Review – an Overview
                                                            • The Conduct of Business Reforms part of the MMR looks at:
                                                              • The Prudential Reform part of the MMR looks at
                                                                • The Niche Markets part of the MMR looks at:
                                                                  • Impact of the MMR on intermediaries
                                                                    • Responsible lending
                                                                      • Distribution and disclosure
                                                                        • European Commission mortgage review
                                                                        • Competitive Context

                                                                          • Key points
                                                                            • Instability in the market sees lenders keen to offer more direct products
                                                                              • Figure 23: Average number of intermediary and direct mortgage products available, April 2009-February 2012
                                                                            • Warning of potential return to dual pricing strategies…
                                                                              • … yet intermediary exclusive deals are returning with NewBuy
                                                                                • 97% of intermediary products arranged with advice
                                                                                  • Figure 24: Advised sales, by selling channels, April 2010-March 2011
                                                                              • SWOT Analysis

                                                                                  • Figure 25: SWOT analysis
                                                                              • Lending Market Overview

                                                                                • Key points
                                                                                  • Gross mortgage lending figures show some resilience
                                                                                    • Figure 26: Total mortgage lending, by gross and net advances (not seasonally adjusted), 2001-12
                                                                                  • Remortgaging activity increases by 17% over the last year
                                                                                    • Figure 27: Gross mortgage lending, by type of loan, 2005-11
                                                                                  • FTBs still struggling to meet deposit requirements
                                                                                    • Figure 28: Loans advanced for house purchase, by type of borrower, 2005-11
                                                                                  • BTL lending accounts for 10% of all mortgage lending
                                                                                    • Figure 29: Number and value of new BTL mortgages sold, 2003-11
                                                                                • Intermediary Share of the Mortgage Market

                                                                                  • Key points
                                                                                    • Direct channels account for 52% of regulated mortgage sales in 2010/11
                                                                                      • Figure 30: Proportional distribution of regulated mortgage sales, by channel, 2006/07-2010/11
                                                                                    • Opportunities for intermediaries in 2012
                                                                                      • Intermediary business looking to diversify to survive
                                                                                      • Mortgage Intermediary Marketplace

                                                                                        • Key points
                                                                                          • The number of mortgage advice firms continues to decline
                                                                                            • Figure 31: Number of mortgage and home finance firms, January 2006-December 2011
                                                                                          • Intermediaries must differentiate to survive
                                                                                            • Both DA and AR numbers are falling
                                                                                              • Figure 32: Number of mortgage and other home finance ARs and DA intermediary firms, by type, December 2007-December 2011
                                                                                          • Mortgage Lenders/Intermediary Relationship

                                                                                            • Key points
                                                                                              • Dual pricing and direct selling – what are the reasons?
                                                                                                • How can the relationship be managed for mutual benefit?
                                                                                                  • Where are the opportunities for intermediaries?
                                                                                                    • Procuration fees – a threat to the lender – intermediary relationship
                                                                                                    • Company Profiles – Key Intermediary Players

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

                                                                                                                • Key points
                                                                                                                  • Mortgage intermediary advertising spend starts to creep up
                                                                                                                    • Figure 33: Amount spent on advertising in the mortgage intermediary sector, 2007-11
                                                                                                                  • Mortgage market conditions could boost this sector
                                                                                                                    • Mortgage Works from Nationwide tops intermediary adspend in 2011
                                                                                                                      • Figure 34: Top ten advertisers in the mortgage intermediary market, 2009-11
                                                                                                                    • Press advertising dominates mortgage intermediary adspend
                                                                                                                      • Figure 35: Advertising channels in the mortgage intermediary sector, 2011
                                                                                                                  • Mortgage Adviser Research – Confidence and Market Conditions

                                                                                                                    • Key points
                                                                                                                      • Market conditions mean that intermediaries are struggling to help some clients
                                                                                                                        • Figure 36: Proportion of clients intermediaries unable to assist, March 2012
                                                                                                                      • A lower standard of client is harming the intermediary business
                                                                                                                        • Figure 37: Main reasons that intermediaries are unable to assist clients, March 2012
                                                                                                                      • Confidence levels remain buoyant amongst mortgage intermediaries
                                                                                                                        • Figure 38: Intermediary confidence for the future, March 2012
                                                                                                                    • Mortgage Adviser Research – Challenges and Priorities

                                                                                                                      • Key points
                                                                                                                        • Competition from direct products is the key concern for mortgage intermediaries
                                                                                                                          • Figure 39: Biggest challenges currently facing mortgage intermediaries, March 2012
                                                                                                                        • Threat from direct sales is increasing
                                                                                                                          • Figure 40: Threat from direct sales, March 2012
                                                                                                                        • Intermediaries take steps to safeguard their businesses
                                                                                                                          • Figure 41: Main intermediary priorities for next six months, March 2012
                                                                                                                      • Appendix – Market Background

                                                                                                                          • Figure 42: Overview of distribution channels within the mortgage marketplace since mortgage regulation
                                                                                                                        • Different types of mortgage advisers

                                                                                                                        Companies Covered

                                                                                                                        • Aegon Group
                                                                                                                        • Ageas
                                                                                                                        • Aviva Plc
                                                                                                                        • Cambridge Building Society
                                                                                                                        • Furness Building Society
                                                                                                                        • Intrinsic Financial Services
                                                                                                                        • Investment Funds Direct Limited
                                                                                                                        • Legal & General Group PLC
                                                                                                                        • London & Country Mortgages
                                                                                                                        • Mint Financial Services Ltd
                                                                                                                        • Newcastle Building Society Limited
                                                                                                                        • Openwork
                                                                                                                        • Platform
                                                                                                                        • Premier Mortgage Services
                                                                                                                        • Principality Building Society
                                                                                                                        • Resolution plc
                                                                                                                        • Sesame
                                                                                                                        • Sesame Bankhall Group Limited
                                                                                                                        • Teachers Building Society
                                                                                                                        • Zurich Financial Services

                                                                                                                        Mortgage Intermediary Focus - UK - May 2012

                                                                                                                        £1,995.00 (Excl.Tax)