"I'm not sure what this report is trying to prove," says broker as industry reacts
The UK mortgage market has seen a profound transformation in recent years, thanks to the increasing influence of mortgage brokers. Last month’s report, released by the Bank of England, focuses specifically on that effect – but some of it’s ‘findings’ are, at best, highly questionable. The new report, The Effect of Mortgage Brokers on Banks’ Business Models claims to shed light on how brokers have reshaped the competitive landscape and lending practices – and makes some pretty contentious claims.
The report found that between 2013 and 2020, the proportion of mortgages arranged through brokers surged from 57% to 81%, especially among first-time buyers.
This shift was driven partly by regulatory changes like the 2014 Mortgage Market Review (MMR), which mandated the use of qualified advisors for direct sales, pushing banks to collaborate more with brokers. The report found that brokers play a dual role in influencing both consumer decisions and lenders' business strategies.
The Bank’s report contends that brokers have been found to steer borrowers towards shorter fixed-term mortgages, which, obviously, tend to require remortgaging more frequently - an outcome that the bank claims is driven by brokers' incentives to maximise fees. “We show that regions that experienced a 10pp increase in broker intermediation tend to experience a 1.8–2 percentage point increase in the proportion of mortgages with a short fixed term, suggesting that brokers play an active role in steering households towards mortgages with a short fixed term,” said the authors.
Brokers have, however, been understandably incensed by the claims.
“It is an outrageous slight on the professionalism of UK mortgage brokers as a whole,” Malcolm Davidson from UK Moneyman told Mortgage Introducer. “This coming from the Bank of England who ignored obvious inflationary signals at the end of 2021 and early 2022 which led to inflation going up to 11%,” he continued. “And now all of a sudden because borrowers are faced with higher rates of interests on their mortgage rates, suddenly it’s all mortgage brokers’ fault and not the fault of anyone sitting in MPC.”
One of the important issues that the bank seems to have missed is the economic realities of the time period that the report covered. “I think during that time period, two year fixes were a lot cheaper than five year fixes and better value for money,” explained Richard Alton of Alton Mortgages. “So one has to look at the total cost of the deal for clients and what the client actually wants as well.”
Alton too, is quick to point out that the Bank hasn’t exactly been on top of things. “I don't think the Bank of England have done a good job managing the base rate at all,” he said. “I think they were too slow to react and they've been too slow potentially to bring them down.”
And that, says Alton, means that maybe the Bank is not as sagacious as it would like to portray itself. “I think Andrew Bailey has not got his hand on the pulse,” he told us. “If you live in the real world you want to pay less for products. You want the cheapest deal, the best deal, the most appropriate deal. But also if you can pay less, you will take it. That's about brokers absolutely getting to meet your clients, having a relationship, and if it's a two-year fix or a five-year fix, it's a long term relationship to get the best rates at that time.”
“The days of mortgage brokers churning business on two year fixed rates is something that went out with the ark,” said Davidson. “And I think it’s fairly insightful that the Bank of England still have that perception of what is a highly professional sector within financial services.”
It appears that the report writers have seen that direct lending tends to be for a longer term (what a bank would prefer) while brokered deals have tended to be for shorter periods – and then made the jump that brokers are steering clients to a shorter term for their own gain – and this assumption has two huge flaws. One, the authors seem to be oblivious to the fact it may be direct lenders steering clients without independent advice to a longer term mortgage and – two – brokers have been managing to get clients lower rates than those who go direct.
“If I'm honest, I don't know what the basis of the report really is,” Gindy Mathoon from Create Finance told Mortgage Introducer. “I can’t believe this study has come out. What the report doesn't talk about is the success stories for people who managed to shave their interest by half.”
What the report does do, however, is credit brokers for helping to open up the market. For smaller lenders, the Bank says, brokers have been a game-changer. By broadening their geographic reach, brokers have allowed these lenders to diversify their portfolios and target niche markets. This has enabled smaller players to focus on products like high loan-to-value (LTV) or long fixed-term mortgages, which larger banks tend to avoid due to regulatory capital requirements. Notably, the market share of smaller lenders in long-term, high-LTV mortgages doubled from 13% in 2013, to 24% in 2020.
The findings, however questionable some of them are, suggest that brokers will continue to play a pivotal role in shaping the mortgage market. For lenders, this means refining product strategies and balancing broker partnerships with profitability.
