Mortgage lending
MORTGAGE SOLUTIONS - 30TH DECEMBER 2007
The Council of Mortgage Lenders has forecast that gross mortgage lending will end up being £360bn for 2007, although it expects that to fall to £340bn for 2008. Many believe this is a bullish outlook and have claimed gross lending will drop back to £300bn in the year ahead.
Whatever the truth of the matter there are certainly no forecasters claiming that lending will rise or even stay at the same level in 2008 and so it is incumbent on all mortgage brokers to assess how they can grow their client base, develop their services and make existing clients more profitable.
For those that simply sit back and choose to ride out the storm, they will not only find volumes dropping, but they are also likely to lose existing clients who may be attracted by the more aggressive and enterprising tactics of rival brokers.
While a lot has been written about how firms need to diversify their commercial base and create new revenue streams, this is not something that is simply true in difficult market conditions. The best brokers will have an ongoing policy of reviewing their operating strategy and investigating how they can make the service and product offering better for clients and in turn more profitable for themselves.
However it is true that the more difficult conditions put a greater focus on internal business reviews and certainly the majority of brokers will be considering their options at the moment.
The fastest and easiest way of improving income for brokers is to make sure that they are dealing with the providers offering the best products, back up by the best terms in the market.
This is particularly true for the secondary products that they sell such as general insurance and protection. Where do brokers source these products? Are they competitive enough to attract clients to take them out? How is the commission on these products structured? Could brokers be getting a better deal?
Looking around there are certainly a number of distributors trying to offer brokers products, pricing and commission that will be attractive. Obviously the logic behind this is to get more business through the door, but why should brokers not avail themselves of these opportunities if it works in both their own and their client’s favour?
Paymentshield, for example, has been advertising widely and has not only changed the pricing of its insurance policies, but has also altered the structure on which commission is paid.
By freezing the premiums on building and contents insurance to 2005 levels, the firms is trying to encourage more brokers to sell such policies alongside the mortgage. how many brokers offer this type of cover to clients? What is the conversion rate? Could it be improved?
If brokers are able to beat the premium price that clients are getting elsewhere, surely it makes sense for them to offer this to clients? Not only will this improve the profitability of dealing with that client, but it will also make life easier for the customer and improve the service being offered.
The level buildings and contents sales made by mortgage broker is incredibly low, given that somewhere in the region of 70% of mortgages go through the intermediary channel.
By cutting premium levels and also offering two rather than one year’s commission up front, Paymentshield has taken a bold step to not only offer a product that will be good for consumers, but also to incentivise brokers to go out and sell it.
By making the commission structure for household insurance more like that which brokers are used to for other products such as life and protection, it should become much easier for them to realise how quickly sales could impact on their short-term profitability.
This is exactly the kind of stimulation the market needs and brokers need to avail themselves of these opportunities if they are to ride out the challenging times ahead and place their own business on a better footing for the future.
There is no doubt that simply relying on existing business practices and procedures will not be enough for the intermediary market to maintain its revenues throughout 2008. the sooner each and every firm can start to look at exactly what is available, how they could incorporate it into their own client discussions and make a genuine effort to push these changes through, the sooner the firms will be able to reap the rewards.
People often talk about challenging times also offering opportunities for those who are prepared to examine their modus operandi and alter it to meet the new environment. This is definitely going to be true in 2008 and rather than bemoaning their fate, brokers should be working harder than ever to take advantage of the changes as they occur.
