But will the new rules under mortgage market review, which came into effect on 26 April, put a dint in the ability of advisers to make a sale at the time of these housing-related events? I do not think so, for a number of reasons.
First, most advisers who are seeing customers at the time of a housing event will be using a combined initial disclosure document (IDD) – which will inform the customer that alongside the mortgage needs that will be discussed, protection needs will also be addressed, and a recommendation will be made for the cover that the customer needs. Do advisers actually live up to this requirement? Well, in my experience I would have to say that the experience is mixed. Of course, we only see the high-level data and there may be very good reasons why I see a variation in protection sales ranging from best at over 75 per cent of mortgage cases where a related protection product has been sold; down to the least active, where penetration rate may not get into double figures.
Some firms may deal with a greater proportion of first-time buyers, who may well have several protection needs that need to be met, whereas other firms may be dealing with older and more experienced mortgage borrowers who already have some cover in place and who may carry significant life insurance from a death in service benefit from their employer. But in any event, the IDD is a very valuable tool in opening up the conversation with the customer about their financial services needs beyond the mortgage.
Now, the MMR has proposed that the IDD becomes an optional document for advisers to use, so some might consider that its removal could put a dint in sales. I believe not. For advisers who are serious about doing the proper job, the IDD is invaluable. Some networks are certainly keeping it for their appointed representative advisers, and any conversations about changing it would likely end with replacing it with a similar document – a terms of business letter, for example – which would do the same scene-setting job.
Outlook
Second, the general outlook for mortgage and protection brokers for this year and the next is very, very positive. Not only is the level of gross mortgage lending forecast to rise significantly this year – the Council of Mortgage Lenders is forecasting a rise from £177bn gross lending in 2013 to £195bn – but I believe all of this market growth will have to come through the intermediary channel. The branches and direct operations of most mortgage lenders will be very much ‘otherwise occupied’ in the early part of this year, coping with the very significant impact of implementing processes to deliver fully advised sales across their operations and in their back offices. In fact, the scale of the change required from lenders arising from MMR is many times that which intermediaries will be expected to assimilate. Growth in the overall mortgage market will have to be delivered by intermediaries and we will see lenders scale back their direct and branch activities in the first half of the year to ease the pressures on their new systems and processes in the early months.
An additional factor in the positive outlook for mortgage and protection advisers is the regrowth of the remortgage market, stimulated by the prospect of base-rate rises starting next year. This has already led to the withdrawal and repricing of some longer-term fixed rates and we are seeing more customers wanting to take advantage of the current historically low rates to fix their family budgeting for the next few years and to move off what in some cases are quite high standard variable rates. So I anticipate strong growth in the remortgage market, too, this year.
But, as mortgage brokers get more and more busy with mortgage business, will they not stop selling protection as much, simply due to time pressures?
There have certainly been quite a few reports in the trade press that some firms have experienced this over the last year, but this has not been everyone’s experience. The life-to-mortgage ratio – a measure of the penetration of life protection sales against mortgage sales has remained constant throughout 2013 despite the advisers doing around 40 per cent more mortgage business. For a good professional broker doing the full job for their customer, this is simply what they have been trained to do all their working lives. It reflects what the IDD says they will do and they are well incentivised to do it, too – with pounds per hour earnings from protection sales exceeding earnings from providing mortgage advice. We simply do not accept the ‘too busy’ argument.
Challenge
Another challenge comes from the perception that the mortgage sales process is going to become much more complex and time consuming. For the branch mortgage sales staff of lenders, that may certainly be the case. But for mortgage intermediaries, the reality is that the sales process changes that MMR proposed have largely come in already – the need for comprehensive budget planners; the removal of self-certification and fast-track arrangements; new rules about how to assess affordability. These have all been brought in gradually by lenders over the last couple of years, and thus the April date was not in any way a big bang and intermediaries will take it in their stride.
We are also seeing the emergence of new models to address the ‘too busy’ conundrum in various forward-thinking businesses. In one model, the firm deploys an adviser as a ‘sweeper’ – following up the protection need identified by colleague mortgage sellers who concentrate on completing the mortgage sale alone. In another, larger-scale model, a call centre operation is used, staffed by protection advice specialists following up on the introductions from their mortgage sales colleagues. In both of these models, what the model loses in efficiency because of the hand-off between advisers is more than made up for by the specialism and dedication of the expert sales resource concentrating on meeting the protection needs. It is early days for both these models, but the results we have seen look encouraging.
Mortgage and protection advisers can look forward to a good couple of years ahead of them. A growing market, with a growing share coming through intermediaries and good reasons to engage with customers to discuss remortgaging. But in this great boost of activity advisers must not lose sight of the need to do the full professional job for their clients. And above and beyond the regulatory and economic reasons why they should do this, there are the professional and perhaps moral reasons as well. Customers trust advisers to give them good advice about what they need to do to protect their homes, and their lifestyles at one of the most confusing and complicated times of their lives. Advisers must repay this trust by doing the full, proper job on both mortgage and related financial services needs.
So, the implementation of the new rules following the MMR does pose some challenges to mortgage-related protection sales, but there are also many positive factors. It is certainly more ‘treat’ than ‘trick’.
Stephen Smith is director of housing and external affairs for Legal & General Mortgage Club
Key points
- The new rules under MMR will not put a dint in the ability of advisers to make a life insurance sale at the time of these housing-related events.
- The scale of the change required from lenders arising from MMR is many times that which intermediaries will be expected to assimilate.
- For mortgage intermediaries the sales process changes that MMR proposed have largely come in already.
