Approximately 70 per cent of all UK residential mortgages are advised sales.
From first-time buyers seeking help to understand their finances, understand the home-buying process and to qualify for new build purchases, to those customers with more complex specialist lending needs, the demand for mortgage advice is constant.
The question facing broker firms is how should the advice be provisioned? Can the adoption of technology and changing customer behaviour (brought in by the Covid-19 pandemic) disrupt the traditional broker model, making it more affordable while improving profit margins?
In a recent move that could be construed to throw doubt on the online broker model, Habito announced proposals to cut their broker team by more than a dozen employees.
Does this indicate the online broker model is flawed, or could other factors be in play? The answer is likely to be a combination of factors, some specific to Habito, others of a much more general market consideration.
Looking at Habito itself, the model did rely on a high-profile marketing campaign and paying basic salaries well above the industry average, so cost cutting when the market turns is probably to be expected.
Market-wide factors
Added to this, one should also consider the targeting of the advertising campaigns, which were loud and aimed at a younger audience. An audience that in the cities, for instance, are not necessarily interested in getting on to the property ladder – a worrying trend for developers who insist on flooding our cities with luxury flats, but that is a story for another day.
At a recent roundtable I attended, a common theme amongst wealth and mortgage professionals was how millennials are more concerned around living their lives than attempting to build up the large deposits required to then saddle themselves with long term debt – an interesting divergence from the traditional views we have held since the Thatcher governments of the 1980s.
Our market, which is consistently challenging for first-time buyers, is now suffering from wider economic headwinds.
We should not underestimate the impact of this on a business model that could be perceived to be targeting youth as a disruptor.
More central to the pressure on advice are the market-wide factors we see creating a slowdown in the mortgage market. Evidenced by the reduction in mortgage approvals.
Our market, which is consistently challenging for first-time buyers, has seen prices rise by approximately 30 per cent in the past five years and is now suffering from wider economic headwinds.
An energy crisis, crippling rates of inflation, political uncertainty, rising interest rates, and wage growth lagging behind inflation – it is no wonder the fear of prolonged recession looms large, so seeing people become more focused on protecting their lifestyle rather than extending themselves is to be expected.
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So what can brokers do to help? The engagement they have with their customers must change. It needs to provide more efficient support, provide facilities to help customers control their finances and to reduce friction and costs in the application process. This is where the use of technology can help.
Technology investment can greatly reduce the manual effort brokers face in processing a mortgage application, freeing up time to spend in a value-add customer facing role. Key areas where technology can remove or significantly reduce manual pain include:
- Communication: Customers in the digital age are used to immediate responses to their questions, the right technology can deliver these responses (or at least the holding messages for them) and thereby improve the customer experience.
- Improved integration from mortgage sourcing: Removing re-keying by facilitating an application direct from the sourcing engine removes data entry errors and reduces inbound phone contact.
- Provision of an online ‘decision in principle’: Enabling customers to leverage benefits of portal technology and open banking to reduce data entry and re-keying saves both the customer and adviser significant amounts of time.
- Improved broker reporting and case tracking: Providing online case tracking reduces inbound customer contact to advisers, reducing call handling volumes and thus taking cost out of the operation.
- Automated workflow: Enabling customers to upload documents and proofs via customer portals and improvements in optical character recognition technology mean quicker processing times, reduced re-keying, and automated routing of cases to the necessary case handler or underwriter.
While it is fair to say there are clouds on the horizon, there are also some factors that mean they may not be around for too long.
In the short term, there is likely to be a rush of borrowers looking to fix their rate in the face of budget challenges, rising interest rates and rising inflation.
In the medium and longer term the chronic housing shortage in the UK, the expectation of a cultural obsession to own our homes (which may be on the turn), and an eventual decrease in energy prices and inflation should see strong demand for home ownership continue.
The outlook for online brokers looks to be positive.
Those brokers who invest in technology to remove manual processing improve the customer experience, and who can focus the human element on delivering advice in a cost-effective manner, will play a crucial role in supporting homeowners through this period of economic uncertainty.
It is also worth noting that broker networks and mortgage clubs provide technology platforms as part of their membership model, which may bring in easier ways for smaller broker companies to take advantage of the latest technology. This will help maintain a level of independence while being able to provide the best of what Habito offer.
The outlook for online brokers therefore looks to be positive, providing they make the necessary investments in technology.
Chris Moore is digital consultant at Altus
