Report: Eye on Intermediaries - Mortgages - UK

Issues in the Market
Key issues
Abbreviations
Market in Brief
The number of mortgage intermediary firms is in decline
- Figure 1: Number of mortgage advice firms and annual house prices (England and Wales), January 2006-December 2008
Intermediary share declines in 2008
- Figure 2: Overview of the proportion of gross mortgage advances, by value, by channel, 2007 and 2008
Intermediary market squeezed, as direct products take centre stage
Mortgage lending declines by 29% in 2008
- Figure 3: Gross and net lending secured on dwellings, 1997-2008
Lenders pledge support to intermediaries
Regulation moves up the agenda
Growth in demand for online advice
- Figure 4: Sources most likely to be used for mortgage advice, January 2009
Financial advice -- the consumer perspective
Key mortgage adviser survey findings
Mortgage intermediary confidence is on a downward trend
Top mortgage intermediary challenges and priorities
Intermediaries seek more consistency and better communication
Market Background
Key points
Different types of mortgage advisers
Overview of complex mortgage distribution structure
- Figure 5: Overview of distribution channels within the mortgage marketplace since mortgage regulation
The DA or AR question
Growth of specialist mortgages spurs distribution growth
The balance of power shifts
Packagers -- a sector in decline
Mortgage clubs provide bargaining power for DA advisers
Looking forward
Internal Market Environment
Key points
Background to credit crisis
UK mortgage market seizes up
Housing transactions plummet
- Figure 6: Number of UK property transactions with a value of £40,000 upwards, seasonally adjusted Q2 2005-Q1 2009
House prices suffer a dramatic decline
- Figure 7: Various UK house price indices, annual percentage change, January 2007-March 2009
Revaluations cause headache for mortgage brokers
Bank base rate falls to an all-time low...
- Figure 8: Bank of England base rate and three-month (monthly average) LIBOR, January 2003-March 2009
...which produces mixed results for mortgage advisers
Government support for mortgage market...
...but it doesn' t extend to intermediary sector
Asset Protection Scheme should help kick-start lending
Broader Market Environment
Key points
A deteriorating economy -- a summary
Desire for home ownership drives UK mortgage market
Growth in household debt slows in 2008
- Figure 9: Total household debt, 1992-2008
Arrears and insolvencies increase as recession bites
Mistrust becomes an issue for the mortgage sector...
...and advisers need to be aware of consumer sentiment
Consumer Sentiment
Key points
Consumer confidence falls throughout 2008...
- Figure 10: UK Consumer Confidence Index, January 2002-March 2009
...but appears to have bottomed out
A time for financial caution
- Figure 11: Savings, investment, borrowing and debt repayment -- consumers' expected activity, 2002-09 quarterly indices
Demand for borrowing remains low
Drop in bank rate is having little impact on mortgage intentions
- Figure 12: Expected mortgage and property purchase activity, 2002-09 quarterly indices
Negativity about house prices increases...
- Figure 13: Response to the statement ' How do you think property prices will perform in the next couple of years?' , 2008 and 2009
...but property still regarded as good investment in the long term
- Figure 14: Agreement with statements concerning current conditions in the housing and mortgage markets, January 2009
Regulatory Challenges and Developments
Key points
FSA warns of market dangers during the downturn
FSA proposals could place cap on mortgage products
Ongoing concerns about quality and suitability of advice
Commission-based remuneration under scrutiny
Potential overlap of the RDR
2009 brings regulatory changes
OFT studies to encompass mortgage intermediaries
Mortgage fraud cases tarnish intermediary sector
FSA raises additional £117 million from firms
PPI restrictions could damage income further
Lending Market Overview
Key points
Mortgage lending declines by 29% in 2008...
- Figure 15: Gross and net lending secured on dwellings, 1997-2008
...but intermediary income falls by around 40%
Advances for house purchase fall by more than 50% in 2008
- Figure 16: Gross advance, by type of loan, 2002-08
FTB activity remains low
- Figure 17: Number of loans for house purchase and number of first-time buyer loans, 2002-08
Tightening of lending criteria changes landscape
The demise of specialist mortgage sector
BTL market under growing pressure
Strengths and Weaknesses in the Market
- Figure 18: Market for mortgage intermediaries -- SWOT analysis, 2009
Market Developments and Innovations
Key points
Overall decline in intermediary products
Intermediary lenders withdraw...
...and direct products take centre stage
Steps towards fee-based advice
Lenders assert greater control over distribution
Consolidation in the intermediary marketplace
Distributors look to strengthen position
Diversifying income streams
Increased focus on cross-sale and new business opportunities
An industry perspective on diversification
Lead generation grows in importance
The Intermediary Marketplace
Key points
Mortgage intermediary firms suffer in second half of 2008
- Figure 19: Number of mortgage advice firms and annual house prices (England and Wales), January 2006-December 2008
9% of mortgage intermediary firms close in 2008
- Figure 20: Overview of the sector for mortgage advice, directly authorised and appointed representatives firms, January 2006-December 2008
DA firms in decline...
- Figure 21: Number of directly authorised retail intermediary firms, by primary category, January 2006-December 2008
...while ARs are gaining ground
- Figure 22: Number of appointed representatives sponsored, by primary category firms, January 2006-December 2008
Distribution changes could increase number of mortgage ARs
Intermediary Share of Mortgage Market
Key points
Intermediary share declines in 2008
- Figure 23: Overview of the proportion of gross mortgage advances, by channel, 2007 and 2008
Intermediary share declines across all sectors
- Figure 24: Intermediary share of new mortgage business, by type of loan, 2006-08
Intermediaries set to be squeezed further in 2009
Possible scenarios for intermediary lending in 2009
- Figure 25: Potential scenarios for distribution of gross mortgage advances in 2009
Key Intermediary Mortgage Lenders
Key points
HBOS accounted for 25% of intermediary share in 2007...
- Figure 26: Top intermediary mortgage lenders, 2007
...but intermediary lenders undergo profound changes in 2008
Looking forward
Lenders to provide more funds in 2009
Key Intermediary Players
Legal & General
PMS
Sesame
Openwork
Personal Touch Financial Services
Brand Communication and Promotion
Key points
Advertising financial advice
£19.4 million spent advertising financial advice services in 2008
- Figure 27: Overview of adspend on financial advice services, 2004-08
Direct mail and press are favoured when promoting financial advice
- Figure 28: Adspend on financial advice (independent and non-independent), by media type, 2008
Advertising to intermediaries
Advertising to mortgage intermediaries was slashed in 2008
- Figure 29: Total intermediary-directed adspend, 2004-08
The Mortgage Works was the top advertiser in 2008
- Figure 30: Top advertisers of products and services to mortgage intermediaries, 2006-08
Lenders use specialist publications to target advisers
- Figure 31: Top publications used to advertise mortgage products and services to mortgage intermediaries, 2008
Key Advice Channels
Key points
Current account providers appear to be in pole position...
- Figure 32: Sources most likely to be used for mortgage advice, January 2009
...but intermediaries write more business
- Figure 33: Overview of main sources most likely to be used for mortgage advice, January 2009
Lifestage influences the choice of channel
The vast majority of intermediary sales are fully advised
- Figure 34: Advised sales, by selling channel, April 2007-March 2008
Significant growth in the internet as a source of mortgage advice
Internet has positive and negative implications for intermediaries
Growth in online broking
A multichannelled approach
The Consumer -- Perspective on Professional Advice
Key points
Mortgages are the most popular topic for advice...
- Figure 35: Financial matters previously sought advice on and interested in seeking advice on in the future, January 2009
...but future demand for mortgage advice appears much lower
However, there are future opportunities for mortgage advice
More than a third opt to do their own research
- Figure 36: Attitudes towards professional financial advice, January 2009
The cost of advice
The Mortgage Adviser -- Overview of Business Confidence
Key points
Mortgages account for less than 50% of business, for half of all advisers
- Figure 37: Proportion of business currently generated from mortgages, March 2009
Mortgages look set to decline as a proportion of overall business
- Figure 38: Proportion of business expected to be generated from mortgages in three months' time, March 2009
Confidence in mortgage market declined over the last six months...
- Figure 39: Mortgage adviser confidence measure for the mortgage market as a whole, March 2009
...but individual prospects appear to be a little more positive
- Figure 40: Mortgage adviser confidence measure for indiviidual business prospects, March 2009
Confidence is linked to business diversity
- Figure 41: Confidence about the mortgage market in future, by percentage of business from mortgages, March 2009
- Figure 42: Confidence about your business in future, by percentage of business from mortgages, March 2009

Eye on Intermediaries - Mortgages - UK - April 2009

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