In recent years the mortgage market has undergone a sea-change, with major regulation introduced, an influx of new entrants and an increasingly competitive environment. Given this change in the market, it is becoming increasingly important for lenders to ensure that they have a good understanding of what the market wants. This means they need to research trends, develop innovative products and look at new ways of meeting customer and broker needs.
This increasingly tough environment has meant lenders are faced with making some difficult strategic decisions and face a real challenge in finding innovative ways to build, grow and develop their business. It is evident that there is a need to ensure that their current product ranges are as competitive and attractive as possible whilst reflecting the demand of the market. Regular product reviews are just one of the ways to keep the portfolio fresh and appealing. In addition, lenders need to be sure that their service levels are meeting and ideally exceeding their customers’ expectations.
To achieve this, researching the market is critical and lenders need to talk to their intermediaries and key partners to ensure that their offer matches the needs of brokers and customers alike. For an intermediary lender, there are three main elements to a market research programme. Firstly, by listening to and involving brokers during the initial stages of product development, the lender can ensure that the features it is offering have a value to the potential customer. Brokers can provide feedback on what customers are demanding from their products and what they perceive to be the forthcoming trends to inform new product development.
Secondly, market research needs to involve not just the brokers, but the end customer too. Not only are they choosing the lenders’ products, but also under the FSA’s ‘Treating Customers Fairly’ guidelines, lenders need to demonstrate that the features of the products being developed have a value to the customer. Listening should be a best-practice principle for businesses wanting to grow and develop as it is also a requirement of the industry’s regulatory body.
Finally, lenders need to analyse the market and competition. Comparing the products offered with their own portfolio and identifying similarities and differences can help establish strengths and weaknesses in a lenders’ product range. It also identifies where the gaps and trends are in the market.
Once a lender has undertaken the necessary research and analysis, it will need to decide on the return it wants to achieve over a certain period of time before it finalises the product or service. Other factors which need to be considered include some key product features such as; the underlying rate, interest charged, retention, promotional rate, and promotions around, such as legals and valuation.
Linked to market research is innovation, which has always been a high priority in the specialist market. In today’s increasingly crowded marketplace, it is more important than ever for lenders and intermediaries to focus on innovation in order to grow as businesses. Looking at new ways to manage service, staff, marketing, and product features should be at the core of any successful business’ strategy.
One way to think about innovation is how it meets issues in the market. One of the biggest challenges has been for first-time buyers with the difficulties they face getting on to the ladder as house prices continue to rise. Approaches to the problem have included the introduction of 100 per cent lending and affordability based lending.
100% loan to value products also meet a need on the refinance market as they can provide a better value way for customers to meet their borrowing needs. In July this year, GE Money Home Lending (GEMHL) announced the launch of the igroup 100 per cent mortgage. GEMHL recognised the significant demand for 100 per cent lending and due to its size and underwriting expertise it was able to meet that need. Following GEMHL’s move to 100 per cent, other lenders such as First Mortgage Options, have moved to include 100 per cent as part of their product offering.
Looking ahead, there are currently a number of opportunities in the mortgage market for lenders looking to expand. In recent months we have seen several sub-prime lenders entering the prime market and vice versa. Branded lending has also been a growth market of late and at GEMHL we have been evolving our branded lending proposition to create genuinely integrated distribution relationships with our partners.
Launches of this nature, into a new market, can be a high-risk strategy and a daunting prospect. The decision to go with a pilot launch can make all the difference between a gut feeling and a real market opportunity. It enables you to modify and iron out any product or service issues and ensures that you are fully able to support a complete launch of the product to the market place. Whilst you may have done extensive research to understand that the market wants and feel confident that the market is ready for you, a pilot could uncover a number of modifications that will ultimately mean you have a more suitable product for an overall launch. What works for lenders can work for intermediaries as well. For example, test and learn is a lower-cost way to test marketing concepts that also reinforce with customers your willingness to try new things.
This year, the industry has seen the arrival of several new entrants into the specialist mortgage market place. These businesses range from brand new players backed by big name investments banks, to a number of prime, high street lenders looking to develop their sub-prime offering. As well as conducting research that will give you an in-depth understanding of your desired market, some lenders look to the acquisition of specialist providers to strengthen their offer. Morgan Stanley, for example, recently became a big player in the prime market through acquiring Advantage. Some have just hired people with deep market knowledge.
These new entrants have encouraged increased competition, and with it, advanced ways to innovate and communicate. The world of communications has become increasingly savvy to new media channels and the opportunity presented to companies by this revolution is huge. The wealth of channels at our disposal today include various internet media such as blogs and podcasting, using tools such as 3G mobile phones, laptops and blackberries to name but a few. The simple fact that there are more ways of reaching your customer is a major plus.
The internet provides a bewildering number of opportunities for communicating to a wide audience. For intermediary led businesses, e-mail and the internet are crucial in sustaining communication with mobile colleagues and customers. If your trade demands that you are out on the road, a constant and reliable stream of information is essential to remain at the forefront of your industry’s news and to be aware of developments in your market.
Why are these new information channels on the increase? Consumers and customers are changing the way they receive information. With this control over their consumption, they can decide on the merits of one channel over another, so communication strategies need to be multi-media.
The challenge for us all is to cut through the clutter to command consumers’ attention. Both businesses and the media need to adapt to this new environment - and quickly. The information revolution is proceeding apace and unless we keep up, we - and our clients - will be left behind.
