There are two ways to increase profits – increase sales or reduce costs. Increasing income means increasing sales and to increase sales you must have the right product coupled with access to the product delivery methods that your customers want to access. That often means using the internet.
Lenders recognise this to be the case and a large part of the increase in online customer mortgage applications is in direct business to lenders. Most have invested heavily in systems to enable instant mortgage offers and some are already looking beyond this at creating technology that will produce quicker mortgage completions. They are responsible for driving technology forward in our industry as they realise that it will improve their profitability by reducing their costs. But are mortgage brokers keeping up with the changes in customer demand and delivery?
Threats
Most brokers now use the internet to source and place business, but that’s probably because some lenders will not accept paper-based applications. But how many use technology to increase business levels?
Some may have basic websites providing information on products and rates plus the facility to complete an enquiry form, but rarely more than this. Many smaller brokers still rely more on word of mouth to generate new business. Such firms will not be around for much longer as more and more customers revert to the internet as a virtual shopping centre for all their needs as a consumer.
The belief among brokers is that most customers need advice to arrange a suitable mortgage and that these websites are only used by customers for information gathering. But how many consumers understand terminology such as early repayment charges, arrangement fees and tracker rates?
This may be the reason why many smaller brokers don’t see the internet as a big threat to their business. Also, brokers tend to be involved in the whole process of an application from explaining how the house buying process operates to liasing with solicitors to ensure satisfactory completion.
The greatest threat posed by websites to brokers is on remortgage business. It is now so much easier for a customer to compare what mortgage arrangement they have in place against what is being offered in the wider market. They also have the knowledge gained from previous mortgage transactions. There is also the added competition from lenders that have targeted this sector as a means to better business retention. Unfortunately, with the constant churning in the marketplace, remortgaging is how many brokers make their money these days. That, or dealing with non-conforming cases. However, even here, intermediaries’ expertise is being challenged by the arrival of new entrants and innovation. Increasingly, the non-conforming sector is on the online radar for the major players, with Merrill Lynch backing Mortgages plc and Advantage now owned by Morgan Stanley to name just two. These firms are not here to mess around and will only deal with brokers on their terms. If you do a lot of non-conforming business, and want to continue in that sector, then get savvy with the internet superhighway – and fast.
Effects going forward
Assuming more mortgages will be applied for online going forward, this could well affect distribution models. Networks are acknowledging that online business is growing and some now offer internet-based mortgage leads free or at subsidised prices to their intermediary members. Some also offer support and services to allow websites to be launched.
Brokers who want to increase their online presence will also need to assess compliance control of internet-based sales. Examples of areas that may need to be addressed are the promotion rules, rules relating to information-only sales and aspects of ‘Treating Customers Fairly’. But don’t let that put you off. The internet is a vital tool for brokers who want to maximise sales through new leads. Lead generation firms are becoming increasingly innovative and selective about the leads they offer intermediaries. One such development is online bidding for mortgage leads. However, one drawback with this approach is that it forces advisers to use their work time to bid when they should be spending it with their clients.
Nevertheless, it is an illustration of the way the market is moving, with the internet at the hub of generating or retaining business. In the past it may have been difficult to get hold of the prospects provided by lead generation firms. Traditionally, the problem has been that if immediate contact is not made with the client, the leads get progressively cooler as time elapses. But the advent of the internet now means that leads can be followed up almost immediately and it is important that this is carried out.
Lead generation firms also offer a route to new consumers that might otherwise be unreachable – especially following the ban on cold-calling to individuals. And for the younger broker keen to do business, but without the benefit of a long-established client base, they can prove a godsend.
The more youthful broker also tends to be more internet-savvy and understands the service that online lead generators offer. But even well established firms and individuals can benefit from the power of the internet as a lead generation tool.
Utilising the power
Recent developments in this market, especially with regards utilising the power of the web, makes it easy for all intermediaries to develop and grow their business. So if you are a broker and you haven’t got a website presence – get one. The future of your business depends on it.
A good first step would be to establish a company website and gradually evolve this to offer a facility for customers to apply online and ultimately conduct as much of the process as possible electronically. As with all businesses, lead generation firms can not afford the luxury of standing still and these firms are constantly looking at innovative ways to provide their services to brokers in a way that provides fresh, qualified leads the intermediary can work with.
Good quality lead generation firms can outperform other ways of generating new business because the intermediary is being presented with clients that have already indicated that they are wanting to be to contacted and are receptive about the products you are attempting to sell. These aren’t just random people. They have specifically requested information on your range of products. But some brokers are missing the chance to cash in. Some appear happy to sit on leads until they have gone cold before making the initial follow-up call, vastly reducing the chances of closing down the lead and generating some revenue for themselves.
What is certain is that online lead generation firms seem set to play a bigger role within mortgage advice as competition for business increases between mortgage brokers.
The trouble with some mortgage brokers when it comes to maximising sales is that too many are happy in their own comfort zone, which is arranging mortgages and dealing with affiliation agencies and perhaps selling a bit of life cover. But brokers that focus only on mortgage products and ignore associated product sales are losing out on a large chunk of business. Take general insurance (GI), for instance. As well as buildings and contents insurance it is essential you talk to clients about mortgage payment protection. Income protection has taken a bit of a hammering generally of late, but MPPI is a cover the government is eager to push to the public.
Mortgage ntermediaries that choose to operate in this market can access a range of products from a number of providers. Online quote engines are readily available so you can assess the most appropriate cover for your client. Indeed, it is possible to outsource the process to a GI wholesaler and earn an introducer fee.
Remember it is not the mortgage loan that needs protection – it is the people that take out the loan and that’s the case even in buy-to-let. Anyone with a spouse, children and business interests needs to be thinking about critical illness, term and key man insurance. All you need is the inclination to advise on them and open up a new revenue stream to increase sales and ultimately help your business become more profitable.
Nat Daniels is managing director of Mortgage Angels
