Remortgaging has become a common feature of the UK mortgage market, and an increasing number of mortgage customers are remortgaging more than once.
The simple truth is that those aged between 30 and 44 are more likely to remortgage, with more than 60 per cent of those with an annual household income exceeding £50,000 having remortgaged in the past five years.
Alarmingly, more than a quarter of customers who have remortgaged have changed lender, with over 50 per cent of those who have switched doing so at the end of a discounted or short-term fixed rate product.
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Unsurprisingly, therefore, lenders are now adopting a proactive approach to try to retain their existing mortgage customers. Moreover, they are also designing more flexible mortgage products in order to curb existing customers from churning. The high level of churn in the UK mortgage market means that some lenders’ customer bases are more affected than others, with a higher proportion of customers generally citing Halifax as their previous lender.
Customer behaviour
As such, understanding the major factors influencing the customer buying decision plays a crucial role in designing successful acquisition and retention strategies.
So, what are the major factors influencing the customer’s purchase decision? Not surprisingly, price remains the most mentioned influential factor when choosing a mortgage for the population as a whole, and a significant proportion of customers choose their mortgage product based on advice they receive from professionals.
However, a meaningful number of borrowers – over one in 10 – also state that being an existing customer influenced them in choosing their current mortgage product, with a broadly equal number remaining with their current lender because it agreed to lend them an additional amount that they required, where others may have refused.
But, whatever the statistics tell us, the fact is that the relevance of the factors influencing the customer’s decision to choose a particular mortgage product and lender varies by age group and income band.
Lender response
Naturally, it is understandable for lenders to try and maintain their long-term interests. The fact is that they have already been doing this to varying degrees over the years by offering existing borrower rates to good customers who request them. However, lenders have now realised that, although borrowers have been paying them, they have no automatic right of ownership of these customers as clients. So, as such, they must be more proactive in order to retain business.
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The dramatic increase in competition between banking, building societies and financial service companies has placed a huge emphasis on the value of customer retention. The cost of acquiring new customers continues to rise as providers need to offer increasingly better incentives due to market forces. This inevitably encourages customers to move from one mortgage provider to the next, so the incumbent lender does not get a chance to recover the acquisition cost.
Customer-focused organisations must anticipate and address the needs of each customer in a timely manner. Delivering a properly engaged service enables a business to build lasting and profitable relationships with its customers, making the organisation more productive and reducing churn by optimising the use of resources to satisfy each and every customer.
To thrive in this highly competitive business environment, mortgage providers must transform their contact centres from being merely reactive, to being proactive service providers, delivering the right messages, at the right time, in the right place, through the right channels.
It is important to remember that tomorrow’s mortgage customer may be today’s investor or current account holder. Their expectations of the care and attention they might receive while a mortgage borrower will be set by how they are currently treated, and will probably have a huge impact on their selection process. So, customer service excellence in one ‘department’ is important for the success of another.
Clear expectations
Customers are very clear about their expectations for a service that is painless, productive and effective. In most cases, customers do not care about a company’s policies or its cost of providing service, but they do care greatly about long waits in a queue, on the telephone, or for an e-mail response.
Unfortunately, most mortgage providers have not kept up with their customers’ exponentially-increasing expectations for good service. Service quality is subjective and the overall perception is often based on each customer’s last service experience. One bad service experience can undo all previous service excellence. On the flip-side, when customers are consistently thrilled with your company’s service experience, you have set the bar for excellence.
Customer expectation for quality service, reactive or proactive, is unique in that it increases no matter what else happens in the economy. New profiling and clustering techniques can and should also be applied to acquisition – steering the mortgage provider towards the recruitment of ‘better’ customers. As much as anything, ‘better’ in this context will tend to mean those more likely to have a propensity to loyalty or, quite simply, take a larger mortgage.
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If customer retention is so simple, why isn’t every mortgage provider good at it? It is possible that the majority of mortgage providers, similar to other businesses, may not have the resource, understanding or time to keep in touch with customers. In order to grow a business, many believe they must focus on generating new sales; but what must be kept in perspective is the balance between getting new customers and keeping current ones – retaining customers should be a business priority.
Customers are your business and customers are the best resource for revenue, as well as more customers. If your business does not have the time to put together a retention programme, consider engaging help. If there is no time to proactively follow up with customers personally, outsourcing or hiring someone to do the follow-up is a necessity.
Retention fees
Whichever way you cut it, it is clear that the mortgage industry is suffering from a dramatic increase in customer churn and the resulting effect on profits. The good news is that there are plenty of options for addressing and reversing the trend.
The Halifax has, once again, paved the way with its concept of paying brokers retention fees for keeping borrowers rather than letting them move elsewhere. Other lenders are up in arms about the iniquity of it all.
More than moral issues of whether or not it’s right for a lender to pay a broker just to keep a mortgage in the same place as it was before, the scenario begs another, equally important question – who actually owns the client?
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In fact, this is probably the most relevant question brokers can ask themselves in any given situation. After all, ownership of the client is something that exists at the cornerstone of any business relationship. With it comes the guarantee of customer loyalty, not to mention word of mouth reputation building.
So, is it a question we should be asking about all our client relationships? If so, do we feel rightly entitled to claim ownership of this most precious of commodities?
The received wisdom is that only things keeping a client from moving elsewhere are inertia, in other words the irritation of moving elsewhere, tie-ins and quality of service derived from the original provider.
It is this latter factor that, as mortgage intermediaries, we are most able to influence. Regardless of who pays the best procuration fees, or who offers ongoing retention fees, the industry must convey to its clients that best advice is its motivating factor. Indeed, the hard-hitting truth is that the client has absolutely no duty to come back to us, other than his or her own duty to themselves to obtain best value, best advice and the best service.
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So, rather than being hung up on the concept of being paid to keep a client where they have always been, let instead concentrate on providing a world class service offering – giving the client what they really want. Because, when all is said and done, that’s what clients really deserve.
