Council of Mortgage Lenders figures reveal mortgage brokers were responsible for 72 per cent of new business by value and 69 per cent by volume in 2016, as Table 1 shows.
David Hollingworth, associate director of communications at London and Country, says that although brokers have always been part of lenders’ distribution strategy for new business, existing customers were often left to sort out any deal on their own when it came to the renewal of their mortgage. Lenders would communicate any options available at the end of the deal to the customer alone, while the broker researched any other options available.
If it was felt that the offer from the existing lender was the best option, the borrower would often have to go it alone with little involvement from their broker. In effect, the broker/lender partnership that had initiated the original deal could become almost adversarial come renewal time, Mr Hollingworth notes.
Hesitant
Mr Hollingworth explains that lenders have been hesitant to pay procuration fees to retain business in the past because they felt they were paying for business that would have stayed with them anyway.
Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, suggests that the higher margins charged on mortgage deals meant it was worth lenders’ while not to focus on retention of business.
Lenders did not offer retention products, but began to try to cherry-pick the customers they wanted to keep.
Fast forward many years and margins are much slimmer and the emphasis is on a more holistic approach. Lenders want to offer fairer deals and recognise they must have something for borrowers to switch to at the end of the deal if they wish to avoid haemorrhaging customers.
“They’ve spent money getting them onto the books,” outlines Mr Sinclair.
Brokers still go through the advised process with clients, but for retained business the back end process for retention should be easier than procuring new business. Retention procurement fees are typically around 0.2 per cent compared with new business procurement fees of 0.3 per cent upwards.
Mr Sinclair attributes the change partly to the Mortgage Market Review, which has put more criteria at the forefront of applications and enhanced the role of brokers.
It has also a reflection of how lenders have moved away from a non-advised retention basis. Many have found it difficult to build their internal advisory resources and more and more are relying on business based on intermediary advice.
Missing a trick
Now lenders are more aware of the role that brokers can play in their retention strategy, Mr Hollingworth says those who fail to pay retention procurement fees are not giving their customers the best option. He believes the latest changes are in borrowers’ interest as brokers become more involved and help customers compare the offer from their existing lender with other deals.
The trend is not new: lenders such as Halifax and Barclays have offered retention procurement fees for some time. Mr Hollingworth believes the type and number of lenders now committing to do the same suggests an unstoppable momentum.
It doesn’t mean lenders will keep every customer, but it looks better from the borrower’s point of view now that the broker can become involved. All the options available to the borrower can be clearly seen and compared.
Competition is also a significant factor in this trend. The mortgage market is not expected to enjoy particularly great growth rates over the next few years, yet there are more new lenders entering the market nonetheless. Firms recognise they need a long-term sustainable strategy for retaining intermediary business.
