First published by Best Advice
2020 was likely to have been a good year for many mortgage market stakeholders and with the ‘mood music’ and anecdotal evidence around the market suggesting January 2021 continued in the same vein, it would be easy to think that transaction numbers, client numbers, income generation and profitability will continue to head in an upward direction.
As a national network, we can point to a number of metrics which might also suggest ‘the only way is up’ – our mortgage applications topped 58,000 last year, lending completions rose above £8bn for the first time in our 30-plus year history and we grew our network adviser numbers to 775 by the calendar year end.
However, and I sense we are no different to many firms in the market, there are a number of underlying challenges that could make 2021 a different environment. Indeed, from our own perspective, we have to consider just how important our ability to grow the network was in 2020 (and in the future) when set against the potential impact in a number of areas.
For a start, as many have already picked up on, the proposed increase in the FSCS levy for our sector is staggering, and by our early calculations will result in hundreds of thousands of pounds of extra regulatory cost for us this year, as it will proportionally for all networks and advisers.
Add in a number of other challenging areas such as a potential dip in the level of cross-sales activity, and the growing impact of significant numbers of product transfers (PTs) being conducted, in the place of remortgages, and we begin to become very grateful that we have our scale and solid foundations.
The PT landscape is undoubtedly an area which requires attention. As a network we have seen the number of PTs being written rise from between 8-10% to 28%. This component of our overall lending figures was always going to rise given that many lenders didn’t involve intermediaries in the PT process until fairly recent times. This meant that the client, if they wanted one, had to go direct which carried with it a real time/resource burden that clients use advisers in order to avoid.
It meant the adviser tended to conduct a remortgage and, as we know, for their work they would have received a full procuration fee payment, plus there is evidence to suggest that a client builds a deeper and more loyal relationship with the adviser, when moving lender, instead of sticking with the original lender.
It was a smart move by lenders to move to a position where they allowed advisers to carry out the PT on their mutual client’s behalf, because not only did it provide a broader distribution channel but it held down the acquisition cost, compared to new mortgages.
Of course, there are some notable, large-scale exceptions such as the Lloyds Banking Group lenders, particularly Halifax. The industry might say a ‘thank goodness’ that LBG do have a policy which pays the adviser the same procuration fee for remortgage or PT, which feels very broker-friendly and appreciates our sector.
Many lenders however remain dead against ‘full’ proc fees for PT business – which makes it rather difficult for those lenders to justify they are as committed to their intermediary partners, to the extent that LBG is.
That doesn’t however mean I anticipate other lenders will follow LBG’s approach anytime soon. It’s far too easy to suggest they are keeping a ‘watchful brief’ on this area while picking up a growing amount of PT business through advisers and paying less procuration fee for that seam of business.
Advisers and networks need to keep a close eye on any adviser seemingly favouring PTs in favour of remortgages, merely for an easier life. Clearly, what is best for the client is best for the client: but it’s clear that some advisers take a route of least resistance which contributes to a growing market share for PTs instead of remortgages.
And, while it is nonetheless pleasing to note that advisers are responsible for over half of all PTs, we must question whether it is cannibalising the remortgage business?
It is true that 2020 was a peculiar year and that a more typical mix of remortgage and PT business could emerge in 2021: especially as we are likely to have an ultra-competitive remortgage market this year which will be great news for consumers as well as advisers. But keep your eye meanwhile on the often opaque drift from remortgages to PTs, where advisers could well be taking the easy route: an option that’s rarely good for the advisory firm and can be sub-optimal for the consumer too.
Rob Clifford is Chief Executive of Stonebridge