The mortgage intermediary world in 2020 may be radically different to the one we know today, but if you look closely you can already see that future starting to take shape.
One of the most far-reaching changes during the next dozen years will be the shift towards closer working relationships between lenders and brokers, which will dramatically change how both sides do business.
Brokers overwhelmingly believe that lenders will increasingly look to form closer strategic partnerships with major intermediaries, according to the recent Alliance & Leicester survey, ‘The Broker World in 2020’. More than
three-quarters of brokers expect to forge stronger links with lenders, even to the point of aligning their plans to grow their businesses together.
A natural process
The relationship between lenders and brokers is already strong, and brokers expect it to get stronger still. Much of the impetus will come from lenders, who are particularly keen to build durable broker relationships to secure repeat business. Aligning their plans and strategic goals is the natural end-point of that process.
And it’s already started. Some lenders are already looking to set up integrated point-of-sale connections between themselves and brokers or packagers. This would see the broker doing their factfind online, and sending the relevant information direct to the lender, without either having to log onto the lender’s website or even a common trading platform such as Mortgage Trading Exchange (mte) or MTX.
This innovation could spread rapidly through the market, as lenders see the opportunity to cut costs and foster that all-important loyalty among brokers.
Winning broker loyalty is now a key goal for every lender, but it won’t be easy. Brokers expect lenders to deliver constant improvements in technology and quality of service. That places the onus on every lender to continually develop their processes.
Broker world: 2020
Brokers will expect lenders to further streamline and speed up the mortgage application process and are increasingly hoping that lenders will make greater use of automated valuation models (AVMs) in the future.
Brokers are also pushing for lenders to extend the boundaries of online case-tracking. This could see lenders providing online bulletins to brokers who send them regular business, updating them on the progress of, say, a batch of 10 or 20 ongoing cases. If lenders can develop secure automated e-mail traffic, they can give proactive updates on pipeline business, and inform the broker the moment a valuation has been instructed.
That could prove invaluable and reassuring for brokers and their clients. As technology develops, lenders could send this information to the broker’s mobile phone, or even their iPod or Blackberry.
Online offers are almost certain to be the norm by 2020, if not sooner, particularly among the top 20 lenders. The more forward-looking solicitors should also play their part, by carrying out e-conveyancing completely online, subject to certain provisos such as a cooling-off period.
Currently, solicitors supply a paper version of the certificate of title, but that could surely move online, allowing the solicitor to send it to the lender via a secure website. This would help the borrower complete their purchase sooner, and the broker complete the case and get their money.
Lenders, brokers and solicitors aren’t the only professions embracing technology, insurers are increasingly seizing the opportunities. By 2020, brokers should be able to source mortgage-related life and protection products online, again speeding up the overall transaction. At some point, insurers might even be able to transmit commission payments online.
It won’t end there. Soon, almost everything the intermediary needs from their lender will either be available from its website or a common trading platform. One day, online decisions-in-principle, transfer of equity application forms, further advance application forms and maybe even commercial mortgage applications could all be completed electronically.
Industry consolidation
As lenders and brokers forge closer partnerships, this could force the pace of industry consolidation. Our survey revealed that the large majority of brokers, nearly four out of five, anticipate greater consolidation among intermediaries by 2020. Interestingly, around half thought this process would largely be driven by stronger broker and lender alliances.
So it is possible that the top 200 brokers will be responsible for up to 85 per cent of broker-generated mortgages. But consolidation won’t be restricted to the intermediary sector. Some say that the market also has an over-supply of lenders, with 115 now registered with the Financial Services Authority (FSA), and around 17 currently applying, many of them packagers.
Packagers are also embracing the challenges of the future. Some could even become major distribution channels in their own right, offering mortgages on behalf of a collection of lenders, and increasingly white-labelling their own products. This should benefit brokers, giving them the opportunity to differentiate themselves by sourcing a wider range of exclusive products from packagers.
A global future
There is one thing everybody agrees on – the future is global. For mortgage brokers, that reads European, with two-thirds of brokers expecting to do a growing amount of business in Europe. Almost half are looking to expand their mortgage broking services into Europe by 2020.
Brokers will reap the benefits from continuing rapid growth in demand from UK homeowners for second homes in established European markets such as France or Spain, or new, relatively cheap EU entrants such as Bulgaria.
Servicing this market could prove surprisingly easy. Again, technology and the rapid growth of e-commerce will prove the driving factors, allowing UK-based brokers to offer mortgages in sterling, dollars, euros or the local currency for popular distribution.
The majority of brokers see a lot of value and opportunity in Europe. Spain, France and Bulgaria look like being the hotspots of the future, with Portugal, Italy and Germany not far behind.
Europe could even emerge as the future battleground for the UK mortgage community, one that will determine which lenders and brokers thrive in future, and which struggle. It presents a great opportunity for brokers to service an expanding sector and diversify their businesses at the same time.
Demographics will also affect the mortgage market. The ageing population and apparently insoluble pensions crisis should further boost the popularity of lifetime mortgages. The market could move from its current niche to the mainstream by 2020, particularly if three or four of the top 10 lenders decide to get involved.
By then, monthly drawdown products could become a widely accepted way of boosting retirement income, giving brokers the opportunity to create a lifelong relationship with their clients.
Client retention
Some industry issues still have to be resolved. By 2020, retention commission could be the norm. Halifax recently started paying retention commission to brokers, following Accord and First Active, and in time this could become accepted practice, forcing all lenders to follow suit or risk losing intermediary business.
Mortgage trail commission is already commonplace in Australia, although ironically, it does little to help lenders enhance their retention rates. Now that every lender offers trail commission it has ceased to be a differentiating factor, and they have to find other ways of competing for business.
The debate over commission could lurch into uncharted territory. One day, we might even see lenders willing to share an element of their profit from a particular market sector with brokers. Or we could see them develop two-track commission structures, paying different amounts depending on whether the borrower is a new customer or remortgaging.
This will partly be dictated by how many people can afford to buy their home by 2020. If high house prices continue to deter first-time buyers, and home ownership remains stuck at around 70 per cent by 2020, most of the growth in the mortgage market will come from remortgages rather than new business, and lenders will set their commission accordingly.
Another factor is how long the current vogue for two-year fixed and variable rates lasts. It is unlikely that they will maintain their present popularity, where they currently account for around three-quarters of all new mortgage deals. By 2020, that figure could have fallen to, say, 50 per cent, and this could encourage lenders to test different profitability models, or introduce trail commission or other innovative payment methods for brokers.
We have already seen Northern Rock introduce different procuration fees for brokers who tie their clients into longer term deals, and that could become more prevalent by 2020.
Mehrdad Yousefi, head of intermediary mortgages at Alliance & Leicester
