UK Mortgage Intermediary Distribution 2007 (Distribution Dynamics)

Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Various types of player participate in the mortgage distribution arena 2
Lead generators have recently joined the intermediary channel 2
Networks: the credit crunch is creating a more leveled field between networks and lenders 3
Packagers: is the future of packagers doomed? 3
Mortgage intermediaries surveyed by Datamonitor believe that packagers are most likely to see their presence weaken in the intermediary channel 3
The intermediary mortgage channel now accounts for the lion's share of gross lending 4
A number of drivers are behind the growth of the intermediary channel 5
The majority of intermediaries surveyed have seen an increase in their business in 2007 5
There are a number of reasons for the increasing popularity of the intermediary channel among consumers 6
Intermediaries also offer advantages to lenders 6
Lenders must tailor their products and services to intermediaries' needs to gain share 7
Intermediaries look for specific factors when choosing which lender to recommend to their customers 7
Challenges and issues in the UK intermediary mortgage distribution channel 8
Current liquidity issues are creating a more challenging market for mortgage intermediaries 8
Mortgage intermediaries' businesses will be adversely affected in current market conditions 8
Table of Contents 11
Table of figures 12
Table of tables 13
An Introduction to Mortgage Intermediary Distribution in the UK 14
Various types of players participate in the mortgage distribution arena 14
Two types of regulatory status exist for those intermediaries advising on and selling mortgages 14
Various types of players operate in the mortgage intermediary channel 14
Lead generators have recently joined the intermediary channel 16
Intermediary size varies across the market, but the typical player is small 17
Networks: the credit crunch is creating a more leveling field between networks and lenders 19
The credit crunch has brought about new dynamics for networks 19
A more challenging market will lead to more network consolidation 19
Given current trading conditions, networks need to focus on critical success factors 21
Packagers: is the future of packagers doomed? 23
The future of packagers has been a much debated topic for a long time 24
What can packagers do to survive in such difficult trading conditions? 26
The intermediary mortgage channel now accounts for the lion's share of gross lending 27
Surprisingly, latest Ipsos MORI data highlights that direct channels occupy a greater share of mortgage distribution than indirect channels 27
Analysis of distribution of new mortgages highlights a similar trend 28
However, further research reveals that mortgage intermediaries remain the major distribution channel, generating roughly 65% of gross lending in 2007 28
Mortgage lenders interviewed by Datamonitor believe that the intermediary channel generates 65% of total mortgages 30
Whether going via an intermediary or through a branch, face-to-face remains the preferred initial contact method for mortgage borrowers 30
However, more consumers are willing to use remote methods for initial contact 31
Lenders generally have a good distribution mix in order to maximize customer acquisition 32
A number of drivers are behind the growth of the intermediary channel 33
The majority of intermediaries surveyed have seen an increase in their business in 2007 33
There are a number of reasons for the increasing popularity of the intermediary channel among consumers 34
Intermediaries also offer advantages to lenders 35
But there are a few drawbacks for lenders from using intermediaries 35
At the time of the survey, the majority of intermediaries believed that their business will continue to grow in 2008 37
Lenders must tailor their products and services to intermediaries' needs to gain share 38
Intermediaries look for specific factors when choosing which lender to recommend to their customers 38
Intermediaries also favor lenders offering a wide lending criteria 39
Speedy application processes and online technological tools remain very important to intermediaries 40
Intermediaries' income continues to be the lowest rated factor 42
A number of factors can persuade an intermediary to change lender 42
Better pricing and product features are strong motivators to intermediaries for switching lenders 42
Slow decision making and poor service by lenders act as deterrents to intermediaries 43
The largest mortgage lenders continue to dominate the intermediary channel 44
Abbey and Halifax were the most popular lenders for prime lending among intermediaries surveyed 45
GMAC-RFC and Kensington were the most popular sub-prime lenders among the sample of intermediaries 46
Challenges and Issues in the UK Intermediary Mortgage Distribution Channel 48
Current liquidity issues are creating a more challenging market for mortgage intermediaries 48
Gross mortgage lending in H1 2007 reached new peaks 48
H2 2007 was marred by liquidity issues 49
The current liquidity crisis has forced mortgage lenders to decrease lending to certain customer segments 50
Mortgage intermediaries' businesses will be adversely affected in current market conditions 50
Intermediaries need to look for other sources of revenue until the market returns 53
A number of other challenges are awaiting intermediaries ahead 54
Lenders pulling away from broker distribution is the major concern for intermediaries 54
Falling commission is the next major concern for intermediaries 55
The majority of brokers receive a commission falling between 0.26% and 0.50% of the value of the loan advanced on prime mortgage business 55
53% of intermediaries are satisfied with their commission levels 56
More than a quarter of intermediaries surveyed believed that commission levels will fall over 2008 57
Incentives other than proc fees are unlikely to become a regular feature of intermediaries' remuneration 58
Trail commissions remain nonexistent in the UK mortgage market 60
Almost a third of the sample stated they are concerned about a house price crash 60
More intermediaries are worried about increased European mortgage regulation than increased scrutiny from the FSA 61
APPENDIX 63
Supplementary data 63
Tables relating to Chapter 2: An Introduction to Mortgage Intermediary Distribution in the UK 63
Definitions 74
Appointed representative 74
Buy-to-let mortgage 74
Directly authorized 74
Fixed rate mortgage 74
Mortgage club 74
Mortgage intermediary 74
Mortgage network 75
Non-standard 75
Sub-prime 75
Packager 75
Self-certification mortgage 75
Methodology 75
Further reading 75
Ask the analyst 76
Datamonitor consulting 76
Disclaimer 76
List of Tables
Table 1: Gross lending of top 15 mortgage lenders generated via the intermediary channel in 2006 5
Table 2: Gross lending of top 15 mortgage lenders generated via the intermediary channel in 2006 29
Table 3: Total UK intermediary gross advances share estimates by a sample of mortgage lenders 30
Table 4: 2006 distribution mix of gross lending for a sample of major mainstream lenders and specialist lenders 32
Table 5: What is your approximate customer base size? 63
Table 6: Largest mortgage networks in the UK, February 2008 63
Table 7: Which one of the following intermediary player groups is more likely to strengthen their presence in the mortgage intermediary market in the next five years? 64
Table 8: Which one of the following intermediary player groups is more likely to see their presence in the mortgage Intermediary market weaken in the next five years? 64
Table 9: How did you first approach or make contact with your current mortgage lender? (Base = all sample) 65
Table 10: How did you first approach or make contact with your current mortgage lender? (Base = all new mortgages at year shown) 65
Table 11: And which one of the following best describes how you made your initial approach when arranging this mortgage? 66
Table 12: Thinking about your mortgage business, how do you feel it has changed in the last 12 months? 66
Table 13: According to you, who 'owns' the customer? 67
Table 14: And how do you expect your mortgage business to grow over the next twelve months? 67
Table 15: Importance of various factors to intermediaries when choosing a lender 68
Table 16: Which three factors from the following list would tempt you offer another competitor's products more often? 69
Table 17: Which three factors of the following list are most likely to make you very reluctant to do business with a lender again? 69
Table 18: Which three mainstream lenders do you most commonly use? 70
Table 19: Which three sub-prime lenders do you most commonly use? 70
Table 20: UK monthly gross mortgage advances, 2006-07, January-June, (�m) 70
Table 21: Forecasts of intermediary share of gross advances 71
Table 22: How concerned are you about the following issues? 71
Table 23: Monthly house price index (Seasonally adjusted), January 2007-March 2008 72
Table 24: What is your average commission in terms of % of loan advance? 72
Table 25: How satisfied are you with your current commission levels? 73
Table 26: Do you expect commissions to increase, decrease or stay the same in the next 12 months? 73
Table 27: Have you seen an increase in incentives (such as cases of wine) offered by lenders? 73
Table 28: Do you expect lenders' incentives to become a regular feature of brokers' remuneration in the near future? 74
List of Figures
Figure 1: A conceptual illustration of distribution in the UK mortgage market, 2008 2
Figure 2: 46% of mortgage intermediaries surveyed believe that packagers' presence in this channel is most likely to weaken over the next five years 4
Figure 3: 57% of intermediaries have witnessed an increase in their mortgage business over the last 12 months 6
Figure 4: Product characteristics that meet the needs of customers and competitive product pricing are the most important factors for intermediaries 8
Figure 5: The UK mortgage market has been slowing since November 2007 9
Figure 6: Intermediaries are facing a significant fall in revenues in 2008 due to significantly lower mortgage lending 10
Figure 7: A conceptual illustration of distribution in the UK mortgage market, 2008 15
Figure 8: The majority of intermediaries surveyed have fewer than 500 customers 17
Figure 9: The sample of intermediaries was dominated by a large number of smaller players each arranging a small number of mortgages 18
Figure 10: Mortgage Times Group has overtaken Network Data as the biggest mortgage network in terms of appointed representatives, February 2008 21
Figure 11: Only 19% of intermediaries surveyed believed that networks are more likely to strengthen their presence in the intermediary channel in the next five years 22
Figure 12: 46% of mortgage intermediaries surveyed believed that packagers' presence in this channel is most likely to weaken over the next five years 26
Figure 13: Ipsos MORI data highlights that 40% of all mortgages were generated via indirect channels at the end of 2007 27
Figure 14: According to Ipsos MORI data, distribution of new mortgages in 2007 was fairly divided between direct and indirect channels 28
Figure 15: A higher proportion of customers in 2007 used the internet and phone channels to make initial contact when arranging their mortgage than in 2006 31
Figure 16: 57% of intermediaries have witnessed an increase in their mortgage business over the last 12 months 34
Figure 17: While 68% of intermediaries surveyed believed that the client introduced belongs to the mortgage broker, a significant 30% stated that the client belongs to both the broker and the lender 36
Figure 18: At the time of the survey in September 2007, 15% of intermediaries believed that their business will decline over 2008 38
Figure 19: Product characteristics that meet the needs of customers and competitive product pricing are the most important factors for intermediaries 39
Figure 20: GMAC-RFC offers a 'Call me back' service to intermediaries, March 2008 41
Figure 21: Better rates and product features remain the major drivers for intermediaries to switch to another lender 43
Figure 22: Slow decision making on lenders' part is the major factor in making intermediaries reluctant to work with a particular lender again 44
Figure 23: Abbey and Halifax are the most commonly used mainstream lenders among the sample of intermediaries 45
Figure 24: GMAC-RFC and Kensington were the most commonly used sub-prime lenders among the sample of intermediaries 47
Figure 25: UK gross mortgage lending in the first six months of 2007 outperformed 2006 levels 49
Figure 26: The UK mortgage market has been slowing since November 2007 51
Figure 27: Intermediaries are facing a significant fall in revenues in 2008 due to significantly lower mortgage lending 52
Figure 28: The majority of intermediaries surveyed were concerned about mortgage lenders looking to pull away from broker distribution 54
Figure 29: The majority of brokers receive a commission falling between 0.26% and 0.50% of the value of the loan advanced on prime mortgage business 56
Figure 30: The majority of intermediaries are satisfied with their commission levels 57
Figure 31: More than a quarter of intermediaries surveyed believed that commission levels will fall over 2008 58
Figure 32: Intermediaries believe that non-commission incentives will not become a regular feature of brokers' remuneration in the future 59
Figure 33: House prices have been falling in the past few months 61