The battle between direct lines of distribution and the intermediary sector has often been fairly even, with those big banks and building societies supplying their branches with tasty, highly competitive products in order to entice customers in rather than have them go via a broker.
Over the years, and certainly since the Credit Crunch, there has been near parity between the direct and intermediary channels, but that is currently being blown out of the water. The latest figures from IRESS suggest that brokers are transacting 78% of all mortgage business at present – and let’s not forget this is a market which at times has struggled to get close to 50%. In previous eras, lenders actively dual-priced in the direct channel’s favour but that appears to no longer be an option.
So, why this shift in balance? Why is the intermediary sector firmly in the ascendency? It is, as always a combination of factors, but quite clearly the Mortgage Market Review – introduced in Spring 2014 – was a real game changer. It effectively meant that in-house/direct ‘adviser’ staff had to be qualified to the same level as independent brokers and it also added a considerable layer of administrative burden for those lenders seeing their customers direct. Whereas previously lenders might be able to get through many tens of mortgage interviews per branch per day, the time that has to be spent with a customer has grown simply because the process has to be much more thorough.
So, at a time when many lenders were having to retrain staff in order to meet the MMR requirements, they were also needing to spend more time with customers. The result has been that their ability to see a sufficient number of mortgage clients has been severely curtailed. The problem for lenders is that their targets have not changed – in fact they have almost certainly gone up due to an improving marketplace and growing demand. So, where can they go to secure the necessary business levels required? Where else but the intermediary of course.
So, it would seem that the march of the intermediary has grown apace from this point in time. Back at the start of the year a number of commentators were suggesting that the intermediary market might get close to 70% of all business this year, however to see it closer to 80% is quite staggering in light of recent history. And, at least in the short-term, one can envisage this motoring past 80%.
For agents this is important to know because while many will have in-house mortgage advisers or introducer arrangements with outside firms, not all will. It’s clear that in this environment allowing your client to tootle off down the road to the bank and building society where they have their current account, is even less the right option nowadays. Not only will they probably take an age to get an initial interview, but the process will be far longer than if they’d used a broker, and (let’s not forget) with much tighter underwriting and affordability criteria to pass there is absolutely no guarantees they will be accepted for the loan anyway.
Instead by going to a broker they are going to get a much smoother and quicker process and if lender A isn’t going to accept the client, then they have the rest of the market – with a couple of notable direct-only players – to look at. If you want any idea about the sea change in this part of the market you only have to know that HSBC – for so long unwilling to deal with intermediaries – is now open to broker distribution. When the ‘big boys’ acknowledge how important intermediary distribution is then you know what the direction of travel is.
So, for those agents who currently have no relationship with a mortgage adviser, now would certainly be the time to secure one. Not only will it provide a smoother finance path for you clients, but you’ll also be able to earn introducer income from it, and it should mean that the process of completing the sale will be much quicker, which again means you get paid sooner.
At the moment intermediaries are definitely in the ascendency and very much in demand. In this respect you should certainly make sure you’re following the crowd.
