The mortgage market has evolved as social demographics have changed and people’s needs have diversified. With an estimated nine million people unable to secure a mortgage from a high-street lender, the demand for specialist lending continues to grow. The remortgaging market alone accounted for 41 per cent of gross advances in 2005 compared with 25 per cent in 2000. This has meant the market has become fiercely competitive with prime lenders moving across into non-conforming. In this environment, understanding the market is crucial to any lender that wants to survive.
Unique requirements
Borrowers who have their own unique requirements have emerged along with new niche markets and opportunities for lenders to capitalise on an ever-increasing customer base. Competition means borrowers shop around in search of the best package available. In fact, 69 per cent of borrowers contacted at least one other lender before taking out a loan with their current lender. Lenders are, in a sense, cornered and must constantly refresh their services to cater to this diverse consumer base. Lenders that are able to embrace such changes are the ones who are most likely to succeed in ‘owning’ these borrowers.
It is here where relationships with brokers can prove extremely beneficial. Not only are brokers considered ‘insiders’ as they are privy to borrowers’ exact needs, they also have insight into how the market works, what products are currently on offer and they have access to pricing discounts and wholesale capital markets. In fact, nearly a quarter of borrowers that were interviewed by Datamonitor in 2006 stated that advice from professionals played an important role in their decision to pick a lender. This came second to the rate of the mortgage, which 33.4 per cent of consumers selected, and proved true for all income and age groups, apart from the 60-plus group, where the highest factor was advice from professionals, at 28.1 per cent.
Brokers are also fully aware of the products and deals each lender is offering. This highlights the importance of brokers in the decision-making process. More than 50 per cent of new business has been generated by the intermediary channel over recent years and brokers are now the largest distributors of mortgages on behalf of lenders. These numbers illustrate the mutual benefits of the lender-broker relationship; that is, if lenders continue to offer borrowers, through the broker channel, more bespoke products and services, this will enable brokers to increase their client base.
Maintaining relationships
It is therefore important for lenders to maintain their relationships with brokers and conduct research among them, whether through day-to-day contact, focus groups or questionnaires, to be able to identify potential gaps in the market for development and further ways of strengthening their relationship with brokers. If manipulated in the right way, this information can be used to the advantage of all.
For example, we conducted research among 100 brokers in December 2006 to gain a better understanding of the challenges of the year ahead. Eight out of 10 highlighted the uncertainty of increases in interest rates as their main concern. However, they were still positive about the future and believed the market would see continued growth through additional help from lenders in terms of new offerings. Buy-to-let and technology were identified as the key areas that lenders should be looking at in order to support the changing market. This enables us to reassess our offerings to match consumer and broker demand while remaining competitive in the market.
There needs to be careful thought and planning on the part of lenders to design strategies and broaden their offerings in line with borrower requirements, to retain existing borrowers while attracting new ones. It is here that diversification is essential. Products and services need to be specially tailored to meet individual needs. As the borrowers’ needs are so varied, lenders need to remain flexible and open to new models. Regular reviews are needed in order to keep a fresh portfolio and service offering.
In addition to talking directly to brokers and conducting research, lenders should also conduct individual research to map the key drivers for growth, such as changes in rates and market fluctuations.
Committing the resource
Lenders need to act on this knowledge by committing resources and investing in technology to help differentiate their service offerings so they are able to take advantage of the new opportunities available to them. This may involve product refreshes and reviewing business strategies and objectives in line with consumer, for example, direct-to-broker channels.Through constant communication with brokers, lenders essentially have a direct link to their target market and as such they can continue to work to meet their demands. Lenders can ensure they remain competitive through research, planning and ensuring that offerings bring something new to the market. Those that remain flexible, knowledgeable and committed to the market, despite constantly evolving consumer demand, are those most likely to gain the trust and business of borrowers.
