The future of the mortgage market has been thrown up into the air since the beginning of the so-called ‘credit crunch’ back in August 2007.
While rumblings of the threat of the American market’s impact on the UK had been around for some time before this, few, if any, asked a year ago, would have foreseen the market in its current state.
With the industry in such a state of flux, everyone has had to re-evaluate how they work and have been left wondering where the mortgage sector will be in another year’s time.
Caught in the middle
Certainly some expect further shifts to come. Mark Chilton, chief executive of Homeowners Mortgages, believes that the broker market faces an inevitable polarisation between high end advice and high volume; those that charge fees and those that don’t. He adds that small brokers caught in the middle are going to find things very difficult.
Chilton points out that two well-proven broker business models exist in the mainstream mortgage advice market: telephone-based firms, with high quality advice, no fees and no face-to-face advice, such as London & Country, and at the opposite end of the spectrum high end practices, which deal with clients who often have irregular incomes from bonuses and require face-to-face or more detailed advice, such as Savills.
Chilton comments that it is interesting to note that John Charcol, which has swung between charging fees and not over the years, has reverted to a fees-free stance – a move designed to let it compete with London & Country, according to Chilton.
For him, it is firms such as these that know their business model that will last the distance.
Chilton says: “Unless brokers have got a well established client base or high worth contact business, such as tie-ups with estate agents, it will be difficult for those that charge fees.
"It’s the smaller corporates that are used to charging fees that will find it hard, particularly those that rely on leads. The quality of leads goes down in times like this. The market is going to go through a big remortgage cycle and it’s always hard to justify fees on refinancing.”
The right way to go
Certainly, David Hollingworth, head of communications for London & Country, believes fees-free is the right way to go, but is adamant that the most successful small brokers will be those that have worked at building and maintaining their client relationships.
He says: “Those that haven’t done that and haven’t looked to entrench their existing relationships with customers will find it tougher in the current market.”
Hollingworth continues: “With large brokers, you’ve got significant brand awareness and we will grow and make no apologies for that. You’re not going to get an argument from me as to whether fees-free is right. What we find is our customers keep coming back for it and find good quality advice.
“Consumers are a lot more aware of what is available. Remortgaging is no longer what only a part of all consumers do. Some have remortgaged four or five times and have become more aware of what to look for.
"When you put broker fees in there with increasing arrangement fees, it places an additional hurdle.”
Specialisation
Yet, it is not just the issue of fees that brokers have to consider, but the matter of specialisation. Chilton comments that in times of consolidation, as heralded by Pink Home Loans’ takeover of BDS, the big firms get bigger and the small get more specialised.
For Chilton, one big area of growth over the coming year is shared equity and if brokers build a relationship with a housing association, they will find that they want not only specialised skills, but advisers that don’t charge fees.
Chilton says: “People have got to look closely at the essence of what they are doing. They have got to size themselves according to what they are.”
However, the matter of size is something that Hollingworth does not believe dictates survival in the current market.
He explains: “We’re large, but we work hard at providing quality service. We expect to continue to expand, but size doesn’t mean you will succeed. The Black & White issue shows that.”
Certainly, Black & White was a large firm that specialised in the non-conforming market and its exit from the regulated mortgage sector proved no one was immune to the effects of the global credit crisis.
In light of that, brokers must consider carefully where they stand. If the broker market does become increasingly polarised, brokers must be prepared for it and the extra challenges it may bring.
