- Mortgage lenders strengthen broker ties as business quality improves
- Lenders report better quality of business while brokers enjoy greater success rates
- Target profiles and credit history the key barriers to securing a mortgage
- More than 1m residential transactions expected for 2013
The mortgage market’s resurgence has prompted 50% of intermediary lenders to increase the number of brokers they work with during 2013, according to the Intermediary Lending Outlook from IMLA (the Intermediary Mortgage Lenders Association).
Despite growing workloads as volumes of applications and lending increase, nearly three in ten lenders (29%) report an improvement in the quality of introduced business during the first six months of the year. A further 65% say business quality has remained stable .
More than a third of brokers (34%) have seen successful applications grow between January and June, while twice as many identify an improvement in product availability (69%).
Structural change in the intermediary market
Directly authorised (DA) and appointed representative (AR) brokers held an almost equal share of intermediated business in the first half of the year, with AR market share marginally higher at 51% vs. 49% according to IMLA members.
Although the majority of lenders (57%) predict this balance will remain the same, more than one in three (36%) expect more emphasis on ARs in the second half of the year, impacted by structural changes in the intermediary market and the anticipated trend for more DAs to become ARs.
Lenders identify two key factors in deciding to work with a particular broker: the credit quality of the business they introduce, and the quality of their loan application information.
More than half of brokers (56%) report that lenders’ service to them has been consistent or improved since January 2013. Brokers’ priorities for lenders to address include providing better systems for applications (25%), more information about target profiles (23%) and a greater range of products (15%). Flexible underwriting and an end to dual pricing also appear on brokers’ wish-list.
Lender profiles define application success
Fitting a lender’s profile is the biggest challenge for mortgage applicants to overcome: more than two thirds of brokers pinpoint this among the key reasons for application rejections (67%). Over half of brokers point the finger at financial difficulties such as county court judgements (CCJs), arrears or bankruptcy (52%), while limited deposits (41%) and the level of existing debt (36%) also impact success rates.
Biggest causes of mortgage application failure
|Brokers who agree|
Not fitting a lender’s profile
Existing or historic financial difficulties (e.g. CCJs, arrears or bankruptcy)
Asking for too much money, relative to the borrower’s income
Not being on an electoral register
Having too many searches on a borrower’s credit report
Nevertheless mortgage availability has clearly improved in the last six months. In the last quarter of 2012, 63% of brokers were unable to source a mortgage for a mainstream borrower, while 67% had the same problem for a near-prime borrower. These figures have fallen dramatically to 37% and 46% respectively in the second quarter of 2013.
Market predicted to exceed 1m residential transactions
Market growth has prompted both intermediary lenders and brokers to revise their predictions for total gross lending in 2013. Having forecast £150bn in January 2013, lenders have raised their expectations by 5% to £157bn.
Brokers remain more conservative, but a busy six months has had an even bigger impact on their annual forecast: up by 12% from £139bn to £155bn in July 2013.
|Mortgage market 2013 forecasts||Intermediary lenders||Brokers|
|Jan ’13||Jul ’13||Jan ’13||Jul ’13|
Total gross mortgage lending
Total net mortgage lending
Total residential transactions
More than four in five brokers (85%) feel the market is currently improving, compared with 37% in January. One in five report a ‘significant’ improvement (20%) – ten times more than January (2%).
Lenders are unanimous in their view that market conditions are currently improving, with almost two thirds reporting a ‘significant’ upturn (63%). Having forecast 940,000 total residential transactions and £9.3bn net lending for the year back in January, both predictions have been revised upwards to 1.01m and £12.6bn respectively.
They are similarly optimistic about intermediaries taking some three fifths (59%) of total mortgage business in 2013. Intermediaries’ 2012 market share in terms of business volume amounted to 55% of first time buyer loans (vs. 53% value), 44% of home mover loans (vs. 46% value) and 45% of remortgage loans (vs. 48% value).*
Lenders expect next time buyers to account for 28% of total gross mortgage lending in 2013 followed by remortgages (26%), first-time buyers (19%) and buy-to-let (17%). But according to brokers, remortgages made up the largest share of mortgage cases introduced in Q2 2013 (28%) followed by next-time buyers (25%), buy-to-let (22%) and first-time buyers (20%).
Brokers anticipate business volumes will increase by around 3% for each category in the second half of the year, with first-time buyers experiencing the biggest rise (3.5%).
Peter Williams, Executive Director of IMLA, comments:
“It is encouraging to see evidence of greater cohesion in the face of a more active market, with brokers successfully matching mortgage applicants to lenders’ requirements. IMLA believes a customer who receives advice is much better served than one who does not, and these results should instil further confidence that the market is ready for continued growth.
“Both lenders and brokers have high hopes that business will continue to grow for the remainder of the year. A key challenge will be to manage that growth while also preparing to implement the Mortgage Market Review (MMR) from April 2014? Any upsurge of activity when the Help to Buy mortgage guarantee arrives in January 2014 will put even more emphasis on broker-lender relationships, so close cooperation will be essential to make these endeavours a success.
“The quality of advice and service are absolutely essential to the consumer experience and IMLA is working hard to uphold good practice among brokers. Together with other industry representatives, we are exploring the case for a framework for an adviser registration scheme to provide a single, authoritative source of information on the entire broker community. As well as helping lenders, brokers and regulators to work together more efficiently, it will give even greater consumer protections which can only be a good thing as business volumes continue to increase.”