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Mortgages: Intermediary Focus - UK - May 2011

"Mortgage intermediaries have faced a turbulent period over the last three years. As lending volumes have declined sharply, the number of advisers operating in the market has fallen by around two thirds. However, over the last year the mortgage market has started to stabilise and there are signs that conditions are starting to improve for mortgage intermediaries."

– Deborah Osguthorpe, Senior Financial Services Analyst

Abbreviations used in the report:

  • AMI – Association of Mortgage Intermediaries
  • AR - Appointed representative
  • BTL - Buy-to-let
  • C&G – Cheltenham & Gloucester
  • CML – Council of Mortgage Lenders
  • DA – Directly authorised
  • DCLG (CLG) – Department of Communities and Local Government
  • FSA – Financial Services Authority

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Table of contents

  1. Introduction

      • Market definitions
        • Abbreviations
        • Executive Summary

            • The market
              • Intermediaries show signs of regaining lost share
                • Figure 1: Proportional distribution of regulated mortgage sales, by channel, 2006/07-2011/12
              • Mortgage adviser population has declined sharply
                • Figure 2: Number of mortgage and home finance firms, January 2006-December 2010
              • Market factors
                • Intermediary product availability starts to improve
                  • Figure 3: TrigoldCrystal Product Index, average number of intermediary products available, April 2007-March 2011
                • Increased regulation could have both positive and negative consequences
                  • Consumer confidence falls but property is still seen as a good investment
                    • Companies and key players
                      • Santander and Lloyds Banking Group top the list of intermediary lenders
                        • Figure 4: Top mortgage lenders (group basis), by gross advances and intermediary share, 2010
                      • The Adviser
                        • Advisers remain uncertain about their own business prospects
                          • Market conditions remain the biggest challenge for intermediaries
                            • Figure 5: Main challenges facing mortgage intermediaries, March 2009-11
                          • Advisers have a range of priorities for the next six months
                            • Figure 6: Main priorities for mortgage intermediaries, March 2009-11
                          • Advisers have mixed views about the Mortgage Market Review
                            • What we think
                            • Issues in the Market

                              • How effectively have mortgage advisers fought back against the move to direct sales?
                                • Do mortgage intermediaries need to be worried about the prospect of yet more regulation?
                                  • Is there still friction between lenders and intermediaries?
                                    • How can intermediaries remain relevant?
                                    • Future Opportunities

                                      • Lending a hand to the life hackers
                                        • A chance to prove their worth
                                        • Internal Market Environment

                                          • Key points
                                            • Intermediary product availability tumbled during the credit crisis...
                                              • Figure 7: TrigoldCrystal Product Index, average number of intermediary products available, April 2007-March 2011
                                            • ...but there are some signs of improvement in the market
                                              • Tough conditions persist as mortgage volume remains low
                                                • Figure 8: Number of mortgage approvals, by type (seasonally adjusted), February 2008-February 2011
                                              • Mortgage switching has halved since 2006
                                                • Figure 9: Proportion of people who have changed their mortgage provider in the last year, 2006-10
                                              • Low bank base rate continues to undermine remortgage activity…
                                                • Figure 10: Bank of England base rate, three-month (monthly average) LIBOR and new mortgages effective rate, January 2005-December 2010
                                              • …although expectations of an rate rise increased in early 2011
                                                • Funding challenges continue to limit market
                                                • Broader Market Environment

                                                  • Key points
                                                    • Consumer confidence remains subdued
                                                      • Figure 11: Monthly UK consumer confidence index, January 1996-March 2011
                                                    • Housing market intentions continue to fall...
                                                      • Figure 12: Expected mortgage and property purchase activity, Q3/Q4 2002-Q1/Q2 2011
                                                    • ...but property is still regarded as a good long-term investment
                                                      • Figure 13: Attitudes towards property and the mortgage market, January 2011
                                                    • Property prices and transactions likely to remain flat in 2011
                                                      • Figure 14: Annual change in UK house prices – comparison of four sources, Q1 2005-Q4 2010
                                                      • Figure 15: Number of UK residential property transactions with a value of £40,000 upwards – seasonally adjusted, Q1 2006-Q4 2010
                                                    • Consumer confidence over house prices has fallen over the last year
                                                      • Figure 16: Expected house price growth, 2010 and 2011
                                                  • Regulatory Context

                                                    • Key points
                                                      • A more intrusive and interventionist approach
                                                        • Mortgage Market Review – overview of the proposed changes
                                                          • Changes to the approved persons regime welcomed by intermediaries
                                                            • Responsible lending proposals provoke mixed response
                                                              • Rules on distribution and disclosure could boost intermediary sector
                                                                • EU proposals for a new mortgage directive
                                                                  • EU proposals could have an impact on the MMR
                                                                    • Second charge lending regulation moves to FSA
                                                                    • Competitive Context

                                                                      • Key points
                                                                        • Pressure from direct products begins to ease
                                                                          • Figure 17: Average number of intermediary and direct mortgage products, December 2009-March 2011
                                                                        • Impact of dual pricing has declined
                                                                          • Intermediary-exclusive products begin to return
                                                                            • 90% of intermediary mortgages are arranged with advice
                                                                              • Figure 18: Advised sales, by selling channels, April 2009-March 2010
                                                                          • Strengths and Weaknesses in the Market

                                                                              • Figure 19: Mortgage intermediary market – strengths, weaknesses, opportunities and threats, 2011
                                                                          • Lending Market Overview

                                                                            • Key points
                                                                              • Gross mortgage lending remains subdued
                                                                                • Figure 20: Total mortgage lending, by gross and net advances (not seasonally adjusted), 2001-11
                                                                              • Remortgage activity declines further in 2010…
                                                                                • Figure 21: Gross mortgage lending, by type of loan, 2005-10
                                                                              • …but looks set to improve in 2011
                                                                                • FTB market also shows signs of steadying
                                                                                  • Figure 22: Loans advanced for house purchase, by type of borrower, 2005-10
                                                                                • Buy-to-let lending increased by a fifth in 2010
                                                                                  • Figure 23: Number and value of new BTL mortgages sold, 2005-10
                                                                              • Intermediary Share of the Mortgage Market

                                                                                • Key points
                                                                                  • Direct channels accounted for 52% of regulated mortgages in 2009/10...
                                                                                    • Figure 24: Proportional distribution of regulated mortgage sales, by channel, 2006/07-2011/12
                                                                                  • ...but intermediaries show signs of recovery in 2010/11
                                                                                    • The outlook for 2011
                                                                                    • Mortgage Intermediary Marketplace

                                                                                      • Key points
                                                                                        • The number of mortgage advice firms continues to decline
                                                                                          • Figure 25: Number of mortgage and home finance firms, January 2006-December 2010
                                                                                        • Survival of the fittest
                                                                                          • Both DA and AR numbers on a downward trend
                                                                                            • Figure 26: Number of mortgage and other home finance ARs and DA intermediary firms, by type, December 2007-December 2010
                                                                                          • Consolidation in the mortgage distribution sector
                                                                                          • Mortgage Lenders – Intermediary Share

                                                                                            • Key points
                                                                                              • Santander and Lloyds Banking Group are top intermediary lenders
                                                                                                • Figure 27: Top mortgage lenders (group basis), by gross advances and intermediary share, 2010
                                                                                              • Lloyds Banking Group reduces lending in 2010
                                                                                              • Company Profiles – Key Intermediary Players

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

                                                                                                            • Key points
                                                                                                              • Mortgage intermediary adspend doubled in 2010…
                                                                                                                • Figure 28: Amount spent on advertising in the mortgage intermediary sector, 2006-10
                                                                                                              • …but remains a fraction of amount spent at the height of the market
                                                                                                                • Halifax tops intermediary adspend in 2010
                                                                                                                  • Figure 29: Top ten advertisers in the mortgage intermediary market, 2008-10
                                                                                                                • Press advertising dominates mortgage intermediary adspend
                                                                                                                  • Figure 30: Advertising channels in the mortgage intermediary sector, 2010
                                                                                                                • A note about adspend data
                                                                                                                • Mortgage Adviser Research – Confidence and Market Conditions

                                                                                                                  • Key points
                                                                                                                    • Only three in ten are more confident about future business
                                                                                                                      • Figure 31: Future business confidence, March 2011
                                                                                                                    • Advisers struggle to assist purchase clients
                                                                                                                      • Figure 32: Percentage of purchase clients that advisers are currently unable to assist, March 2011
                                                                                                                    • Demand for low LTVs undermines home purchase market
                                                                                                                      • Figure 33: Main reasons advisers are unable to assist purchase clients, March 2011
                                                                                                                  • Mortgage Adviser Research – Perspective on Lenders

                                                                                                                    • Key points
                                                                                                                      • There is scope to improve the intermediary/lender relationship
                                                                                                                        • Figure 34: Agreement with statements about lender/intermediary relationship, March 2011
                                                                                                                      • More than 50% of intermediaries do not feel supported by lenders
                                                                                                                        • Figure 35: Agreement with statement ‘To what extent do you agree or disagree that lenders are supporting intermediaries?’, March 2011
                                                                                                                      • Brokers do not feel fairly treated by lenders
                                                                                                                        • Figure 36: Agreement with statement ‘To what extent do you agree or disagree that lenders are treating brokers fairly?’, March 2011
                                                                                                                      • Lender communication is lower down the list of intermediary concerns
                                                                                                                        • Figure 37: Agreement with statement ‘To what extent do you agree or disagree that lenders are keeping advisers informed on changes within the market?’, March 2011
                                                                                                                      • Intermediaries are split over product withdrawal notice
                                                                                                                        • Figure 38: Agreement with statement ‘To what extent do you agree or disagree that lenders are providing sufficient notice before adding/removing rates and products?’, March 2011
                                                                                                                      • Lenders could do better in managing business volumes
                                                                                                                        • Figure 39: Agreement with statement ‘To what extent do you agree or disagree that lenders are responsibly managing business volumes?’, March 2011
                                                                                                                    • Mortgage Adviser Research – Intermediary Challenges and Priorities

                                                                                                                      • Key points
                                                                                                                        • Current conditions and direct competition top the list of challenges…
                                                                                                                          • Figure 40: Main challenges facing mortgage intermediaries, March 2009-11
                                                                                                                        • …but intermediaries are less worried about the bank base rate
                                                                                                                          • Cross-sales remain the top priority for intermediaries...
                                                                                                                            • Figure 41: Main priorities for mortgage intermediaries, March 2009-11
                                                                                                                          • ...but there is less focus on reducing business costs
                                                                                                                          • Mortgage Adviser Research – Perspective on the Mortgage Market Review

                                                                                                                            • Key points
                                                                                                                              • Mortgage lending restrictions concern intermediaries...
                                                                                                                                • Figure 42: Assessment of the impact of selected proposals from the Mortgage Market Review on the intermediary sector, March 2011
                                                                                                                              • ...but there is general support for some other reforms
                                                                                                                              • Appendix – Market Background

                                                                                                                                  • Figure 43: Overview of distribution channels within the mortgage marketplace since mortgage regulation
                                                                                                                                • Different types of mortgage advisers

                                                                                                                                Companies Covered

                                                                                                                                • Alliance & Leicester
                                                                                                                                • Bank of England
                                                                                                                                • Barclays Bank plc
                                                                                                                                • Birmingham Midshires
                                                                                                                                • Cheltenham & Gloucester plc
                                                                                                                                • Council of Mortgage Lenders
                                                                                                                                • Coventry Building Society
                                                                                                                                • Financial Services Authority (The)
                                                                                                                                • Friends Provident plc
                                                                                                                                • Gfk NOP
                                                                                                                                • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                • HSBC Private Bank (UK) Limited
                                                                                                                                • ING Direct
                                                                                                                                • Intrinsic Financial Services
                                                                                                                                • Islamic Bank of Britain
                                                                                                                                • John Gilbert Financial Research
                                                                                                                                • Kantar Media
                                                                                                                                • Leek United Building Society
                                                                                                                                • Legal & General Group PLC
                                                                                                                                • Lloyds Banking Group
                                                                                                                                • Mint Financial Services Ltd
                                                                                                                                • Nationwide Building Society
                                                                                                                                • Northern Rock plc
                                                                                                                                • Office of Fair Trading
                                                                                                                                • Paragon Mortgages
                                                                                                                                • Personal Touch Financial Services Limited
                                                                                                                                • Pink Home Loans
                                                                                                                                • Royal Bank of Scotland Group plc
                                                                                                                                • Scottish Widows Bank plc
                                                                                                                                • Sesame Bankhall Group Limited
                                                                                                                                • Skipton Building Society
                                                                                                                                • UCB Home Loans
                                                                                                                                • Yorkshire Building Society
                                                                                                                                • Zurich Financial Services

                                                                                                                                Mortgages: Intermediary Focus - UK - May 2011

                                                                                                                                £1,750.00 (Excl.Tax)