News Review: Specialist Prime


There are still opportunities to add value by


Colin Snowdon chief


executive, residential mortgages, Aldermore


in last month’s article, i painted a particularly gloomy picture of the future for mortgage advisers. my doomsday scenario included a number of elements: broker numbers falling to a third of their pre- credit crunch levels; many traditional lenders not needing or wanting the additional distribution opportunity that brokers represent; branch- based lenders favouring their own distribution networks over brokers; the number of lenders and products available to brokers diminishing significantly; and a mortgage market under threat from a new breed of super-brands and supermarkets with big marketing budgets and big ambitions. and to cap it all, the mortgage and housing markets and the economy are all in the doldrums with little prospect of any immediate upturn.


So, nothing to worry about then! However, i did conclude by saying that i believed mortgage brokers could survive and even thrive in these harsh market conditions and i believe the answer lies in understanding precisely where and how brokers are able to deliver real value, both for their clients and for lenders. unfortunately, comparison


websites make it easy these days for prime borrowers requiring low LtV mortgages to identify for themselves


which lenders are offering the most competitive mortgage deals. i also suspect that, in the future, the likes of tesco and Virgin will use their consumer marketing know-how to make this ‘dealing direct’ option even easier than it is today. although there will always


be some borrowers who, come what may, like others to do their shopping for them, brokers may increasingly struggle to compete in the mainstream prime sector of the market. there will of course, always


be prime borrowers who need a deal completed quickly or who are seeking large loans and mortgage brokers are able to provide them with a helping hand. Which starts to give us a clue as to which areas of the mortgage market brokers are best positioned to be able to add real value: non-standard applications. ‘non-standard’ doesn’t mean just sub-prime (although it could do if that market ever comes back); it encapsulates any application which doesn’t fit the ‘dealing direct’ model such as buy-to -let, large loans, applications submitted by the self- employed; first-time buyers, borrowers with historical credit issues and so forth. the point is that in these specialist sectors borrowers and lenders need the expert knowledge available from brokers. most borrowers don’t know how to go about looking for a non-standard mortgage and quickly become despondent when they get turned-down by a high street lender. the benefit of using a broker is easy to understand and, perhaps most importantly, it also means brokers can


6 mortgage introducer AUGUST 2010


justify charging their clients a fee for providing this type of added-value service. i do accept that some types


of clients will be less willing to pay a fee than others. For example, i suspect few first- time buyers will pay a broker fee, whereas borrowers seeking larger loans will be more than willing to do so. However, it is far easier for brokers to justify their role in these specialist market sectors, than in it is the vanilla prime mortrgage market. and it’s not just clients


who benefit. Brokers play a critically important part in helping lenders serve the needs of such borrowers. Brokers are lenders’ front–line troops, their point of contact with clients and brokers are in a unique position to be able to really understand the needs and financial circumstances of borrowers. this is particulary true for centralised lenders which have no direct contact with borrowers throughout the mortgage application process. What’s more, it’s not


simply the loan application process where brokers play a key role. they are also the cornerstone of some lenders’ marketing and distribution strategies; without brokers lenders would have to work a lot harder (which means spending more money) to generate new business. Paying brokers a procuration fee is therefore easily justifiable on non-standard deals which require broker involvement, whereas it’s arguably more difficult to justifty paying procuration fees for prime, rate-led (and therefore skinny margin) business.


Which brings us back full


circle to price comparison websites. the challenge which these sites are increasingly facing is that large numbers of consumers are using them as a research tool but only a small percentage are then continuing to apply for a mortgage online. Which is understandable. mortgages remain a low frequency and relatively complicated transaction, and it’s easy to see why consumers want hand- holding and the reassurance of professional advice throughout the process. there is, therefore, an opportunity for brokers to act as the human face of comparison websites, providing a local point of contact for consumers who may have found their perfect deal online, but who nonetheless want support and help to ensure everything runs smoothly. the future role of mortgage


brokers is, i believe, all about adding value for both consumers and lenders, in ways that’s very difficult for either party to do for themselves. We now live in a world in which it’s very easy for consumers to browse and buy online. as i pointed out in last month’s article, online and direct trading has caused the virtual extinction of the high street car insurance broker, because it’s almost impossible for them to add value other than in a few circumstances such as when advising fleet managers or owners of non- standard cars. However, in the mortgage market there are still plenty of opportunities for brokers to add value and the challenge is for brokers to seek out those opportunities.


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