UK Mortgage Intermediary Distribution 2009

UK Mortgage Intermediary Distribution 2009 published by Datamonitor in February, 2010. This report consists of 96 pages and the price starts from US $ 4495.

Introduction

Abstract

Introduction

The severe downturn in gross mortgage lending over the last two years has had profound consequences for the intermediary sector. Intermediaries have had to contend with numerous challenges, such as consolidation, falling levels of income and dual pricing. This report discusses all the main issues, and provides a future outlook for the intermediary sector.

Scope of this research

• Presents findings from Datamonitor' s Intermediary Distribution Survey to highlight the key issues and concerns facing intermediaries.
• Analyzes the steps that intermediaries have taken to counter the effects of falling business volumes.
• Details the impact of regulatory changes on the intermediary channel.
• Provides forecasts for the value of gross lending conducted via the intermediary channel, as well as intermediary market share.

Research and analysis highlights

There has been a steep decline in the number of intermediaries specializing in mortgage finance. Those that remain have had to contend with falling business volumes, compounded by a fall in their share of the total market.

Issues such as the ongoing rationing of secured credit, industry consolidation, the collapse in remortgaging activity, and forthcoming regulatory measures have all affected the intermediary sector.

Intermediaries have been particularly affected by the use of dual pricing by lenders to increase the proportion of direct sales, forcing many to diversify into other product areas to maintain income, and prompting a gradual shift from commission to fees.

Key reasons to purchase this research

• Gain an insight into the views, opinions and concerns of intermediaries.
• Recognize how both lenders and intermediaries have responded to the impact of the credit crunch on mortgage lending.
• Use Datamonitor' s forecasts to help plan your future distribution strategies.

Table of Contents

OVERVIEW

• Catalyst
• Summary
• Methodology

EXECUTIVE SUMMARY

• 2009 has been a difficult year for intermediaries
  • There are several different distribution channels for mortgages in the UK
  • The total number of intermediaries that handle mortgages business is in steep decline

• Intermediaries have experienced a sharp downturn in levels of activity
  • The volume of mortgages arranged by intermediaries over the last 12 months has fallen
  • Intermediaries are claiming a diminishing share of a shrinking market
  • Datamonitor predicts that intermediaries will account for a gradually increasing share of gross advances

• Trend: intermediaries are cautiously optimistic about prospects for recovery
  • Insight: intermediaries predict there will be a rise in demand for credit in 2010

• Trend: intermediaries have been forced to adapt in order to survive
  • Insight: brokers are having to maintain income levels by leveraging their client bases and diversifying

• Trend: intermediaries believe they are being squeezed out by lenders
  • Insight: lenders are focusing more on direct distribution

• Trend: intermediaries have suffered substantial falls in income
  • Insight: absolute levels of income have fallen

MARKET CONTEXT

• 2009 has been a difficult year for intermediaries
  • There are several different distribution channels for mortgages in the UK
  • The total number of intermediaries that handle mortgages business is in steep decline
  • Since 2008, consolidation has led to an increase in the average number of customers per firm

• Intermediaries have experienced a sharp downturn in activity
  • The volume of mortgages arranged by intermediaries over the last 12 months has fallen
  • The total value of mortgages arranged by intermediaries is also at a low level
  • The fall in intermediary gross lending over the last 12 months has affected all types of mortgage
  • Intermediaries are claiming a diminishing share of a shrinking market

• Price and service are the key drivers of choice of provider
  • The most important drivers of choice are price, dependability and service

• Intermediaries tend to use a small number of key lenders

ISSUES AFFECTING THE INTERMEDIARY CHANNEL

• The availability of secured credit remains restricted
  • The credit crunch has had a massive impact upon gross lending levels
  • Consumers have found it increasingly difficult to obtain secured credit
  • Gross lending levels contracted sharply in 2009
  • Datamonitor predicts that intermediaries will account for a gradually increasing share of gross advances
  • Given the uncertain state of the market, Datamonitor has produced two alternative forecasts
  • Specialist lenders have withdrawn from niche markets

• The downturn has led to a significant degree of industry consolidation
  • Several networks merged or went into administration
  • Remaining networks have managed to sustain their numbers of ARs

• A low base rate is stifling the remortgaging market
  • Remortgaging activity fell away sharply in 2009
  • The Bank of England Credit Conditions Survey further highlights the collapse in demand for remortgaging
  • Intermediaries will continue to experience low volumes of remortgage business for some time to come

• The FSA has introduced several policies that have directly affected intermediaries
  • The FSA has launched a wide-ranging review of the mortgage market in the UK
  • The AMI successfully opposed planned increases in the fees levied on brokers by the FSA

• Other regulatory changes have had an impact upon the way intermediaries operate
  • Measures have been introduced to restrict the sale of payment protection insurance
  • Intermediaries were divided on how effective the stamp duty holiday was in stimulating the market

TRENDS FOR INTERMEDIARIES AND LENDERS

• Trend: intermediaries are cautiously optimistic about prospects for recovery
  • Insight: intermediaries predict there will be a rise in demand for credit in 2010
  • Insight: intermediaries remain concerned about the supply of credit
  • Insight: intermediaries are doubtful that their share of lending will recover in 2010
  • Insight: lenders believe that the dual pricing will become less of an issue
  • Insight: prospects for specific types of mortgage are neutral at best
  • Insight: intermediaries believe that their lending volumes will stage a moderate recovery in 2010
  • Insight: a recovery towards more ‘normal’ levels of activity is seen as being some way off
  • Insight: there is no consensus among intermediaries as to when property prices will recover

• Trend: intermediaries have been forced to adapt in order to survive
  • Insight: brokers are having to maintain income levels by leveraging their client bases and diversifying
  • Insight: brokers should attempt to cut costs in order to stay profitable
  • Insight: Intermediaries need to move beyond a purely price-based proposition
  • Insight: brokers could think about shifting from commission-based to fee-based remuneration
  • Insight: intermediaries should consider entering into strategic partnerships with lenders

• Trend: intermediaries believe they are being squeezed out by lenders
  • Insight: lenders are focusing more on direct distribution
  • Insight: lenders are employing dual pricing to bypass intermediaries
  • Insight: the focus on direct distribution is being driven by the lack of secured credit available
  • Insight: some lenders have bucked the trend towards direct distribution and dual pricing

• Trend: intermediaries have suffered substantial falls in income
  • Insight: absolute levels of income have fallen

APPENDIX

• Supplementary data
• Definitions
  • Appointed representative
  • Buy-to-let mortgage
  • Directly authorized
  • Fixed rate mortgage
  • Mortgage club
  • Mortgage intermediary
  • Mortgage network
  • Non-standard
  • Sub-prime
  • Packager
  • Self-certification mortgage

• Methodology
• Further reading
• Ask the analyst
• Datamonitor consulting
• Disclaimer

TABLES

• Table: Total number of ARs and DA firms specializing in mortgage finance
• Table: Number of mortgages arranged over last 12 months
• Table: Intermediary share of market, by value
• Table: Datamonitor forecast for intermediary vs. total market lending, 2009 - 13 (neutral)
• Table: Views on situation over next 12 months
• Table: Actions taken by intermediaries that have seen fall in income
• Table: Whether lenders are focusing on direct distribution at the expense of intermediaries
• Table: Whether intermediaries have seen a fall in income over last 12 months
• Table: Size of current customer base
• Table: Change in size of customer base over last 12 months
• Table: Value of mortgages arranged over last 12 months
• Table: Change in value lent over last 12 months
• Table: Change in gross advances over last 12 months, by mortgage type
• Table: Value of loans arranged by intermediaries
• Table: Value of intermediary loans vs. value of total market loans (£m)
• Table: Importance of factors in choice of main lender
• Table: Importance of factors in persuading intermediaries to switch lenders
• Table: Lender share of mortgage market (based on value of gross advances)
• Table: Proportion of intermediaries using specific lenders
• Table: Quarterly change in demand for and supply of secured credit (%)
• Table: Proportion of customer turned down due to difficulties in obtaining credit
• Table: Monthly gross advances (£m)
• Table: Datamonitor forecast for intermediary vs. total market lending, 2009 - 13 (optimistic)
• Table: Datamonitor forecast for intermediary vs. total market lending, 2009 - 13 (pessimistic)
• Table: Size of leading mortgage networks
• Table: Value of monthly mortgage approvals (£m)
• Table: Quarterly change in demand for remortgage credit (%)
• Table: Extent to which stamp duty has boosted sales
• Table: Issues of concern to intermediaries over next 12 months
• Table: Predicted change in intermediary share of gross lending in 2010
• Table: Sales prospects for mortgages over next two years
• Table: Predicted change in value of intermediary lending over next 12 months
• Table: Datamonitor forecast for gross lending, 2009 - 13
• Table: Predicted change in value of intermediary lending over next 12 months, by predicted change in market share
• Table: When gross lending is predicted to recover to pre-crunch levels
• Table: When property prices are predicted to recover to 2007 levels
• Table: Areas that intermediaries have moved into to deal with loss of income
• Table: Proportion of income derived from commission rather than fees
• Table: Whether intermediaries are losing share of new lending to direct distribution
• Table: Actions taken by lenders to increase direct distribution
• Table: Whether intermediaries have seen fall in average income per product over last 12 months
• Table: Degree by which average income per product has fallen

FIGURES

• Figure: The structure of mortgage distribution in the UK
• Figure: The number of intermediaries specializing in mortgage finance has fallen sharply
• Figure: The number of mortgages arranged by each intermediary fell drastically in 2009
• Figure: Since peaking in early 2008, intermediaries' share of the market has fallen
• Figure: According to the Datamonitor forecast, intermediary gross lending will reach £134 billion in 2013
• Figure: Intermediaries think demand for credit will rise, as will the number of enquiries they will deal with
• Figure: Over half of intermediaries seeing a fall in income have responded by diversifying
• Figure: Two in three intermediaries believe lenders are trying to bypass them
• Figure: Four out of five intermediaries reported a fall in income in 2009
• Figure: The structure of mortgage distribution in the UK
• Figure: The number of intermediaries specializing in mortgage finance has fallen sharply
• Figure: Over half of intermediaries have at least 500 customers
• Figure: Equal numbers of intermediaries have reported rises and falls in customer numbers
• Figure: The number of mortgages arranged by each intermediary fell drastically in 2009
• Figure: 40% of intermediaries arranged less than £2m worth of mortgages in the last 12 months
• Figure: Half of intermediaries have reported falls in gross lending of over 25% in the last 12 months
• Figure: Gross advances have fallen for all types of mortgage
• Figure: Since peaking in early 2008, intermediaries' share of the market has fallen
• Figure: The value of loans arranged by intermediaries has fallen by over 60% from its 2007 Q3 peak
• Figure: As a proportion of total lending, intermediary lending peaked in 2008 Q1 and has since declined
• Figure: Most factors are at least fairly important in driving lender choice
• Figure: Price, product, support and speed are key attractions for intermediaries
• Figure: Lloyds Banking Group is by the largest mortgage provider in the UK
• Figure: Abbey and Lloyds Banking Group are the most popular lenders with intermediaries
• Figure: The supply of mortgage credit contracted throughout late 2007 and 2008
• Figure: One in four intermediaries state that over 40% of their customers have been rejected
• Figure: Gross lending levels were depressed throughout the whole of 2009
• Figure: According to the Datamonitor forecast, intermediary gross lending will reach £134 billion in 2013
• Figure: In the optimistic forecast, intermediary gross lending will rise to £148 billion in 2013
• Figure: The pessimistic forecast sees intermediary gross lending increasing to £119 billion in 2013
• Figure: Most surviving networks have managed to maintain or increase numbers
• Figure: Monthly approvals for remortgaging rapidly declined in the wake of base rate cuts
• Figure: Demand for remortgage credit fell massively in the first half of 2009
• Figure: A third of intermediaries felt that the stamp duty holiday did nothing to boost sales
• Figure: Intermediaries think demand for credit will rise, as will the number of enquiries they will deal with
• Figure: Intermediaries are most concerned about a continued lack of available credit
• Figure: Intermediaries are more likely to think their market share will continue to fall rather than recover
• Figure: Sales prospects for most types of mortgage in 2010 are muted
• Figure: Predicted change in value of intermediary lending over the next 12 months
• Figure: Datamonitor forecast for gross lending, 2009 - 13
• Figure: Intermediaries that foresee a further fall in sector share are more cautious about the future
• Figure: When gross lending will recover to pre-crunch levels
• Figure: Half of intermediaries think property prices will take up to four years to recover
• Figure: Over half of intermediaries seeing a fall in income have responded by diversifying
• Figure: Insurance and protection are the most popular areas into which intermediaries are diversifying
• Figure: Over the last 12 months the average proportion of income coming from commission has fallen
• Figure: Two in three intermediaries believe lenders are trying to bypass them
• Figure: Three in four intermediaries think that their sector is losing market share to direct channels
• Figure: Actions taken by lenders to increase direct distribution
• Figure: Four out of five intermediaries reported a fall in income in 2009
• Figure: The majority of intermediaries have experienced decreases in per-product income
• Figure: A fifth of intermediaries have seen income levels per product fall by 50% or more

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