Mortgage Advice - UK - April 2015

INTRODUCTION
EXECUTIVE SUMMARY
The mortgage market
Low interest rates create favourable lending environment
Figure 1: Monthly interest rate of UK monetary financial institutions (excluding Central Bank) for 2 year variable rate mortgage and 2 year fixed rate mortgage both at 75% loan to value, January 2008-December 2014
Gross mortgage lending expected to continue growing
Figure 2: Forecast of gross mortgage lending, 2009-19
The mortgage advice market
The MMR has reshaped the market in favour of advised sales…
Figure 3: Distribution of regulated mortgage sales volume, advised versus non-advised 2007/08-2013/14
…and intermediary distribution has taken precedence
Figure 4: Distribution of regulated mortgage sales volume, by channel, 2007/08-2013/14
The internet has grown into an important channel to market
The consumer
37% of borrowers use their lender for advice, but intermediaries are catching up
Figure 5: Main source of advice used in arranging last mortgage, December 2014
Over 80% of advised mortgage owners are happy with the service received
Figure 6: Satisfaction with adviser service, December 2014
Online sources are changing the advice landscape
Figure 7: Sources of mortgage information in future, December 2014
Peace of mind and trust are the key drivers behind advice consumption
Figure 8: Attitudes towards advisers, December 2014
ISSUES & INSIGHTS
The MMR has swung the market in favour of independent advice
The facts
The implications
Despite best intentions, technology could threaten advised sales
The facts
The implications
Pension reforms create opportunities for equity release and buy-to-let advice
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
One year on, the market is still adjusting to the MMR
Lending has risen steadily but house prices put a squeeze on demand
Intermediaries are in the ascendency as the value of independence grows
The online channel is disrupting traditional customer acquisition
MARKET DRIVERS
Low interest rates encourage bargain-hunting
Whole-of-market advisers should benefit from interest rate jitters
Figure 9: Monthly interest rate of UK monetary financial institutions (excluding Central Bank) for 2 year variable rate mortgage and 2 year fixed rate mortgage both at 75% loan to value, January 2008-December 2014
High housing demand prices more consumers out
Figure 10: Annual change in average UK house price – Comparison of four sources, Q1 2007-Q4 2014
Mortgage approvals curbed by the MMR
Figure 11: Number of quarterly mortgage approvals seasonally adjusted, by type, 2007-14
Repossessions and arrears are still falling
Figure 12: Mortgage arrears (2.5% or more of mortgage balance) and repossessions, Q1 2009-Q4 2014
Consumer confidence improves in early 2015
Figure 13: Financial confidence index, 2009-15
REGULATORY CONTEXT
The Mortgage Market Review
Time-lag provides an opportunity for independent advisers
Intermediaries can turn affordability criteria into competitive advantage
Almost half of consumers had not heard of the MMR
Figure 14: Awareness and understanding of new mortgage regulations, December 2014
THE MORTGAGE MARKET
Gross mortgage lending exceeds £200 billion for the first time since the financial crisis
Figure 15: Forecast of gross mortgage lending, at current and constant prices, 2009-19
Nearly three quarters of the mortgage market is held by the top six lenders
Figure 16: Top six mortgage lenders, by gross advances, 2012-14
The regulatory burden has weighed heavily on lenders
More first-time buyers manage to fight their way onto the ladder
Rising market should boost re-mortgage sales
Figure 17: Distribution of regulated mortgage sales, by loan purpose 2008/09-2013/14
More homeowners are re-mortgaging just to get a better deal
The aging population will continue to increase demand for equity release
Figure 18: Distribution of regulated re-mortgage sales, by loan purpose 2008/09-2013/14
THE MORTGAGE ADVICE MARKET
Intermediaries take control of distribution as the MMR comes into effect
Lenders have had to improve their adviser offering
Figure 19: Distribution of regulated mortgage sales, by channel, 2007/08-2013/14
MMR enforces increase in advised sales…
Figure 20: Distribution of regulated mortgage sales, advised versus non-advised, 2007/08-2013/14
…but non-advised sales could make a comeback
Concealing the cost of advice can be bad for business
Complaints highlight importance of clarity on fees
Figure 21: Home finance complaints, by cause of complaint, 2010-14
CHANNELS TO MARKET
Advice channels have changed dramatically…
…and price comparison sites have room to grow further
Advisers need to adjust to the new environment
COMPANIES AND BRANDS – WHAT YOU NEED TO KNOW
Company strategies
Transparency plays into the importance of trust
Advisers consolidate to overcome capacity concerns
Innovative software gives brokers a competitive edge
Advisers recognise the growth potential for equity release
COMPANY STRATEGIES
Transparency of fee structure acts as a unique selling point
Which? Mortgage Advisers
Consolidate or fail?
Figure 22: Number of UK authorised mortgage business firms (non-deposit taker), 2008-14* and 31 July 2014
Intrinsic Financial Services
Platform power is key to increasing capacity
Mortgage Compliance & Insurance (MCI) Club
Mortgage Advice Bureau
The equity release market draws investment as firms tap into demand from retirees
Independent advisers already account for 97% of equity release mortgages
Figure 23: Distribution of equity release mortgage sales, by channel, 2008-13
Legal & General enters the lifetime mortgage market
Age Partnership makes it easier for advisers to refer clients to equity release specialists
Sesame Bankhall Group could benefit from retirement changes
THE CONSUMER – WHAT YOU NEED TO KNOW
Prospective first-time buyers are increasingly marginalised
Formal advice has to learn to live alongside digital sources
Peace of mind and trust feature highest for advisers
MORTGAGE OWNERSHIP
Mortgage ownership among the oldest and youngest is shrinking
Figure 24: Proportion of mortgage owners by age, December 2014
Mintel data shows the impact of the financial crisis
Figure 25: Timing of last mortgage/re-mortgage purchase, December 2014
THE FIRST-TIME BUYER
Advisers need to boost awareness of Help to Buy...
Figure 26: Renter attitudes towards property ownership and mortgages, December 2014
...and advisers can help find ways to draw on the Bank of Mum and Dad
CONSUMER AWARENESS AND UNDERSTANDING OF REGULATORY CHANGES
Gap between awareness and understanding is threatening advice business
Figure 27: Awareness and understanding of new mortgage regulations, December 2014
Tomorrow’s first-time buyers are in the dark
Figure 28: Agreement with the statement ‘I have heard of the new regulations and have good understanding of what they mean’, by gross annual household income, December 2014
MAIN SOURCE OF MORTGAGE ADVICE
Banks and building societies are the first port of call for advice…
Figure 29: Main source of advice used in arranging last mortgage, December 2014
…but the value of independence means alternatives are catching up
Younger people are more dependent on formal advice
Figure 30: Proportion of consumers taking any source of advice, by age, December 2014
SATISFACTION WITH MORTGAGE ADVICE
The majority are happy with advice received
Figure 31: Satisfaction with adviser service, December 2014
FUTURE SOURCES OF INFORMATION
44% of potential customers would turn to a bank adviser…
Figure 32: Sources of mortgage information in future, December 2014
…but many plan to do their own research in addition
Figure 33: Proportion of consumers that are likely to use a bank/building society in future that are also likely to use other sources, December 2014
Younger people are more reliant on friends and family for advice
Figure 34: Sources of mortgage information in future, by age, December 2014
ATTITUDES TOWARDS MORTGAGE ADVISERS
Consumers seek peace of mind but want to make their own decisions
Figure 35: Attitudes towards advisers, December 2014
Advisers need to strike a balance between flexibility and regulatory compliance
Figure 36: Agreement with the statement ‘I would expect a mortgage adviser to make decisions on my behalf’, by age, December 2014
Virtual face-to-face advice is still a niche option
APPENDIX – ABBREVIATIONS