24th September 2019
The FCA’s Mortgage Market Study published in March points to a shift in the market that could have serious consequences for the role of the intermediary. And I don’t mean the potential for an increase in execution-only business.
While that danger has been well documented, we risk ignoring a much more serious threat that’s already on us: The growing popularity of product transfers. As the FCA report noted, over three-quarters of consumers switch to a new mortgage within six months of the introductory deal ending and moving onto the reversion rate (usually the lender’s standard variable rate). That’s nothing new, but as the FCA notes, that move can be either to a new lender (an external switch) or to a new rate offered by the existing lender (an internal switch).
There’s little doubt which of those is growing faster: According to UK Finance, 292,500 homeowners switched product with their existing provider in the second quarter of 2019. That’s an increase of 7.3 per cent year-on-year. And only 164,100 of those were on an advised basis. By value, meanwhile, internal switching was up 16.3 per cent over the same period on the previous year to £41.4 billion; only £24.4 billion switching with advice.
With longer term fixed rates now on the rise, it’s increasingly clear that brokers need to adapt to defend against the threat this line of business poses to their revenues.
Demonstrating the value of advice
They can do so in a number of ways.
First, brokers have to get the message out about the value of advice. Lenders have a persuasive offer to customers in terms of a simple solution. They can often finalise business with little or no paperwork. Advisers need to address that challenge head-on, stressing the wealth of information they have on the market, and their ability to get customers the very best possible rates and deal for their unique circumstances.
Data from mortgage sourcing platform Twenty7Tec shows that advisers have access to up to 12,000 different mortgages. Going directly to lenders, customers reduce that number to just 2,000. Yet L&G Mortgage Club’s recent survey shows many people don’t understand how an adviser can help. In fact, more than a third of those who didn’t seek advice said they thought an adviser’s job was to help the lender.
We need to get better at explaining the benefits of advice and the value independent brokers bring. At the moment, we’re not getting that message out clearly enough.
Develop and maintain strong client relationships
We’re only going to be able to explain that, though, if customers are listening. The best way of ensuring they are is to maintain a good relationship with the client throughout the whole life of their mortgage deal – and beyond.
That means, of course, keeping the relationship alive and the client engaged throughout the initial process: The three to four months it usually takes from finding the perfect property to completion. But it can’t stop there, otherwise lenders will use that opening: Many now are getting in touch with customers well before the end of their fixed-term to offer them the opportunity to switch with no fees – cutting the adviser out of the deal before they even begin.
Advisers need to maintain the relationship over the entire mortgage journey, but as fixed-terms become longer and customer expectations grow that’s becoming harder. Traditional, manual processes can lead to confusion and existing clients can be forgotten as advisers fight for new business.
That’s why brokers need to employ technology to automate and enhance the process. An end-to-end solution goes beyond ensuring customers are mapped, tracked and managed; it ensures regular and meaningful client interaction. Tools can automatically provide the customer with monthly updates on the house value, their outstanding mortgage and equity position, for instance, as well as the available options throughout their fixed term – all without the adviser lifting a finger.
Streamline the process
Technology is not just about maintaining the client relationships either; it’s about making the business run more smoothly and efficiently, as well as delivering a better service.
Workflow style systems, such as Smartr365’s MortgageKanban, provide visual representations of work items and automate key contact points in a customer’s journey. This means less time is spent on admin, and more on building new relationships and providing an effective and comprehensive service to current clients. It also frees advisers to actually be with clients. More technology means more meaningful one-on-one interaction, protecting the human touch rather than replacing it.
When the time comes to discuss the options available for remortgaging, meanwhile, these systems don’t just generate the appointment for the discussion; they ensure all the information on the customer and the market are at the brokers fingertips to provide the best possible service.
Of course, technology is not enough on its own. Brokers need better public awareness of their role and they still have to work to develop strong client relationships. But if they can work on these areas and use the technological tools available, they have an offering for clients that is as compelling as ever. Whatever the challenges, brokers continue to add real value for clients, and it could be unwise to write them off.