IRESS annual mortgage efficiency benchmark survey 2016

Transcription

1 IRESS annual mortgage efficiency benchmark survey 216 ANNUAL REPORT 215 / A

2 Contents Foreword 3 Executive summary 4 Buyer types and distribution 6 Sales channels 1 Originations: Pipeline effectiveness 13 Intermediary is king 16 Social media 17 Mobile technology 18 Conclusion 2

3 3 Foreword The mortgage market has had a lot of adjusting to do over the last 12 months, which has brought us the EU Mortgage Directive, a change of taxation around buy to let, a period of speculation ahead of the EU referendum in June, an extended period of uncertainty in the aftermath of the vote to leave and a changing political landscape headed by a new Prime Minister. Our survey looks to inform lenders about the ongoing and future challenges and changes in the mortgage market and enable them to decide where might be best to invest for success. Henry Woodcock Principal Mortgage Consultant IRESS The survey has unpicked some of these changes, identified challenges that have arisen in the last twelve months and looked back at trends over the last three to five years. The continuing dominant influence across the market has been regulation. In particular, the long term effects of the mortgage market review (MMR) have been evident year-on-year, along with changes and pressures from the government and the Bank of England as they look to macro manage the market. None of this has deterred lenders from lending or new entrants from coming to the market. Earlier this year the FCA reported that 2 new banks were seeking to be licensed; many of them will be entering the mortgage market. The challengers bring new models and new technologies to the market, which in turn intensifies competition, fuelling investment by incumbent lenders into process changes and an adoption of emerging technologies.

4 4 Executive summary 2.1 Key findings The rise and rise of buy to let Although the survey provides insight across many aspects of the mortgage market and application processing, the most significant finding confirms what the media have been focused on over the last twelve months: the continued rise of the buy to let market sector. Among the survey participants, buy to let saw an increase of 49% compared to last year and an increase of more than 213% over the last five years of the survey. The intermediary channel continues to be the channel of choice for lenders Intermediaries had an average of 81.7% market share rising to 9% within Tier 3 lenders (tiers described on page 7) 71% of lenders experienced an increase in the number of applications submitted by brokers and 47% of lenders expect the number of brokers to increase next year Digital technology offerings increase Mobile quote and decision in principle have increased over the last year by 185%, case tracking increased by 72.2% and full mortgage application has increased by 116.6% More than 44% of lenders are planning to offer more mobile services next year 2.2 Trends Mortgages sold by intermediaries continued to be the biggest sales channel across all lending, increasing from 52.5% market share in 213 to nearly 82% this year Compared to before MMR, the percentages of cases going to offer across all four time periods measured in the survey, between less than 5 to less than 3 days, are significantly lower today, but have started to recover Challenges in direct distribution Direct lending in branch and by telephony has dropped over the last three years by just over half (51.4%) in branches and by over a third (35.3%) in telephony Over the last three years of the survey, branch sales functionality has dropped by 3% and telephony functionality by 2% in 216 Efficiency impacted by MMR The impact of the MMR is still apparent with the number of offers in 216 being produced in 1 days or less 16% lower than in 212 Mobile quote and decision in principle have increased over the last year by 185%, case tracking increased by 72.2% and full mortgage application has increased by 116.6%.

5 Methodology and analysis Lender market tier groups are based on the Council of Mortgage Lenders (CML) largest mortgage lenders by gross lending table (MM1) and individual lenders own published lending figures. The three tier groups are: Tier 1 lenders with more than 5% market share; Tier 2 lenders with more than.5% but less than 5% market share; and Tier 3 lenders with less than.5% market share. The analysis looks firstly at all respondents, then provides comparisons where appropriate between mutual and bank lenders and across the three tier groups. Lenders have provided figures representing the last full 12 months of trading that approximates to the tax year period for 215/16. In general, an average figure has been used to illustrate patterns across the mortgage market and lender types. IRESS has taken all reasonable care to provide clear and accurate statistics based on the data provided by each participant. Please note that the data provided by the participants has not been independently verified. While this report has been prepared in good faith, no representation or warranty, express or implied, is or will be made and no responsibility or liability is or will be accepted by IRESS or any member of IRESS group of companies or by any of their respective officers, employees or agents in relation to the accuracy or completeness of this review or the use that is made of this review by third parties. The survey group of 18 lenders represents a significant percentage of the mortgage market, with over 68% share of gross mortgage lending in 215 equating to 15bn of loans. Participants The following 18 lenders have supported in 216 Aldermore BM Solutions Cambridge Building Society Clydesdale Bank Co-operative Banking Group Coventry Building Society Halifax Hinckley & Rugby Building Society Leeds Building Society Nationwide Building Society Group Nottingham Building Society One Savings Bank Royal Bank of Scotland Santander Scottish Widows Bank Tesco Bank West Bromwich Building Society YBS Group

6 6 3. Buyer types and distribution 3.1 Buyer types The survey looks at mortgage sales by the main types of buyer: First time buyers typically young people seeking their first step on the housing ladder Moving home existing borrowers moving to a new home Remortgage existing borrowers looking for a better deal Buy to let investment purchases for landlords Let to buy a way for borrowers to let their existing home whilst buying a new home Equity release - older borrowers unlocking the equity from their property Second home for those in a position to buy a holiday home elsewhere in the UK The Market in 216 The survey covers the 215/16 period, before the EU referendum, so it does not reflect any impact of the vote. Going into 216, many lenders were looking to build market share with competitive deals as the cost of borrowing for banks and building societies has fallen. The market is speeding up in other ways too, as Rightmove 1 notes, the average number of days to conclude a sale in May was 57, down from 65 a year ago. Despite government incentives and innovative products offered by lenders, the struggle for first time buyers to get on the housing ladder remains a significant challenge. Only 18.3% of sales in 216 being for first time buyers and the average over the last three years of the survey being 18.4%. CML lending data for the year May 215 to April 216 show 321,1 first time buyer loans, just 3,3 more than the previous twelve-month period 2. The 216 survey has seen the following changes: Buy to let has seen the largest year-on-year increase of 49% The percentage of first time buyer sales has almost been flat with only a.7% increase Residential loans to home movers decreased by 5.6% The proportion of lending for remortgages increased by 8.7% Let to buy dropped by 55% Buyer types First Time Buyer Moving Home Let to Buy Equity Release Remortgage Buy to Let Second Home Banks Mutuals Tier 1 Tier 2 Tier 3 Average 1 Rightmove 2 CML figures

7 Mutuals v Banks As in 215, this year mutuals and banks sold a similar percentage of first time buyer mortgages, 17.9% and 18.8% respectively. Mutuals continued to sell more mortgages to home movers, 31.4% compared to 26.6% by banks, although the gap between mutuals and banks on remortgages closed by nearly 7 percentage points with mutuals at 32.1% and banks 28.6%. The largest differential in sales is with buy to let, with mutuals (19.5%) selling half as many buy to let mortgages as banks (41%) Across the tiers Tier 1 lenders continue to have the highest percentage of first time buyers at 28%, nearly 1 percentage points above the survey average of 18.3%. In 216, Tier 1 lenders also have the highest percentage of home movers at 35.6%, nearly 7 percentage points above the survey average of 28.9%. Tier 2 lenders have the highest percentage of remortgage sales at 32.8% and tier 3 lenders the highest percentage of buy to let sales at 42.3%, over 11 percentage points higher than the survey average of 31% Trends Over the period 212 to 216, the standout change has been the jump in buy to let lending of nearly 49% last year and an increase of more than 213% over the last five years of the survey. The standout change has been the jump in buy to let lending of nearly 49% last year and an increase of more than 213% over the last five years of the survey.

8 8 Buyer type trends First Time Buyer Moving Home Remortgage Buy to Let Let to Buy Equity Release Second Home First time buyer Buy to let 6% 6% % % % 4% 3% 3% 2% 2% 1% 1% Banks Mutuals Tier 1 Tier 2 Tier 3 Avg Banks Mutuals Tier 1 Tier 2 Tier 3 Total

9 Distribution Sales via intermediaries continues to be the key channel in the mortgage market with an average of 81.7% market share, rising to 9% within Tier 3 lenders. The driver for growth in the intermediary mortgage market has been the MMR. It has been further stimulated by existing lenders such as HSBC and Tesco joining the market and challenger lenders choosing intermediary distribution as the lowest cost route to enter the market. On average there is a 1.4 percentage point difference in the other channels telephony at 9.6%, and consumer internet and branch both at 11% Distribution 216 Intermediary Telephony (Direct) Consumer (Internet) Branch Banks Mutuals Tier 1 Tier 2 Tier 3 Average Trends Direct lending in branch and by telephony has dropped over the last three years by a half (51.4%) in branches and by over a third (35.3%) in telephony Distribution trends Banks Mutuals Average The consumer (internet) channel remains a relatively small part of distribution across the three years, but as new digital entrants and so called digital brokers enter the market, this channel could double in the next 18 to 24 months. Looking at the last three years of the survey, across all lending, mortgages sold by intermediaries continues to be the major sales channel increasing from a 56.3% share in the 214 report to an 81.7% share this year Intermediary Telephony (Direct) Consumer (Internet) Branch

10 1 4. Sales channels The number of lenders providing direct and in-branch video links to mortgage advisers has increased over the last 12 months, offering more options to consumers and enabling more direct sales per adviser to be processed. New banks are going completely digital, either selling via brokers or direct to consumers via an execution-only route. The latest move has seen a bridge developing between online consumer self-service and brokers through digital broker services provided by the likes of Trussle and Habito. The FCA 3 is continuing to look at regulatory barriers to innovation in digital and mobile solutions which over the coming months may see the digital channel grow in the mortgage sector. Although with the FCA emphasis on advised sales as being the default, we may see digital assistants emerge rather than complete robo-advice propositions. 4.1 Channel capabilities Branch functionality has dropped by 3% over the past three years of the survey to 216 and telephony functionality by 2%. Mortgage functionality at the point of sale varies between channel and lender across all distribution channels. The intermediary channel has the highest functionality in all eight areas reviewed by the survey. Following the introduction of the MMR, unconditional offers at point of sale have all but disappeared. As can be seen in the chart below, 9 out of ten lenders in the survey provide case tracking to their intermediary partners, but just over five out of 1 provide case tracking to their own sellers. 1% 8% Intermediary Direct 6% 4% 2% % Quote DIP Product Reservation KFI+ / ESIS Unconditional Offer at POS Offer at POS FMA Tracking 3 FCA

11 Channel accept, decline and refer rates At Decision in Principle across the four distribution channels - intermediary, telephony, branch and consumer (internet) - the average levels of acceptance vary between 5% and 7%. In the 216 survey, looking at the differential accepts between bank lenders and mutual lenders, banks have a significantly higher percentage of accepts - 17 percentage points more in intermediary, 3 percentage points more in branch, and 25 percentage points more in telephony. The differential between banks and mutuals is likely to be due to a combination of factors - banks investing in more sophisticated decisioning and income verification, differences in risk appetite and application complexity. The 216 survey has had limited data provided for the consumer (Internet) channel, but the percentage of accepts is generally below the other channels. Intermediary sales Telephony sales 7% 6% Accept Decline Refer 7% 6% Accept Decline Refer 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% % Banks Mutuals % Banks Mutuals Branch sales Consumer (internet) sales 7% 6% Accept Decline Refer 7% 6% Accept Decline Refer 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% Banks Mutuals Banks Mutuals

12 12 Over the last three years of the survey, the number of accepts has declined in all sales channels. Accepts in the branch channel have dropped by 2%, by 18.4% in the consumer, 14.6% in telephony and 9% in the intermediary channel. Aside from consumer internet sales, there has been a significant rise in referrals in the direct (telephony and branch) and intermediary channels, by an average of 56%. 7% Branch sales 7% Consumer (internet) sales 6% 6% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% Accept Decline Refer Accept Decline Refer 7% Telephony sales 7% Intermediary sales 6% 6% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% Accept Decline Refer Accept Decline Refer Over the last 3 years of the survey, the number of accepts has declined in all sales channels.

13 Originations: pipeline effectiveness Originations is the most time-consuming element of the mortgage buying process involving case reviews and multiple interactions with third parties such as valuers and solicitors. Additionally, relatively high numbers of staff are still required to produce an offer or progress a case to completion. However, there has been a gradual move by lenders towards enhancing their mortgage systems to provide straight-through processing and case automation. Despite this positive development, the industry is still some way from optimum levels of automation, which is reflected in the fact that there has only been an increase of four percentage points in offers made in 14 days or less, from 42% in 214 to 46% this year. 5.1 Average time to offer Number of days to offer is seen by lenders, applicants and intermediaries as the key measure of efficient customer service. On average, 46% of offers are currently issued in less than 14 days, much lower than the 51% average in 212. This reduction in customer service efficiency can be attributed to the impact of the MMR Days to offer 216 < 5 Days (%) < 1 Days (%) < 14 Days (%) < 3 Days (%) 216 Days 216 Average 216 Best in survey 212 Average 6 5 < 5 1% 4% 25% <1 27% 8% 43% < 14 46% 99% 51% < 3 76% 1% 87% The average and best in survey percentages are shown in the table above. Compared to the 212 survey, before the MMR impacted the market, the 216 survey average percentages are significantly lower in each time period. Banks Mutuals Tier 1 Tier 2 Tier 3 Avg

14 Trends The average percentages of days to offer across all time periods are significantly lower than prior to the MMR coming in to force in April 214, but they have started to recover compared to 215. In the less than 5 days to offer period, the average has increased by just 3.3 percentage points from 6.4% in 215 to 9.7% in 216. The less than 1 days to offer period has seen an increase of 1 percentage point from 26.4% to 27.4%. In the less than 14 days to offer period, the increase has been 2.4 percentage points from 43.2% to 45.6% and in the less than 3 days to offer period, there has been a decline of 2.4 percentage points from 78.4% to 75.9%. Overall, processing cases to offer is taking longer and is more costly for lenders. Until developments in automated income and expenditure verification come to fruition with the sharing of current account and credit data and the valuation process is fully digitalised, it is unlikely that the average number of days to offer is going to improve significantly. Days to offer by lender type Banks Mutuals Average < 5 Days (%) < 1 Days (%) < 14 Days (%) < 3 Days (%) Until developments in automated income and expenditure verification come to fruition with the sharing of current account and credit data and the valuation process is fully digitalised, it is unlikely that the average number of days to offer is going to improve significantly.

15 15 Across the last three years of the survey, Tier 1 lenders have experienced a general decline across all four time periods, the most significant being in less than 14 days, which saw a drop of 12.9% and less than 3 days with a drop of 12.2%. Tier 2 and Tier 3 lenders have seen the percentage of cases going to offer rise and fall across all time periods in the last three years. For Tier 2 lenders, less than 1 days saw a 9.1% increase in 215, but a 29.4% decrease in 216. The same pattern was followed in less than 14 days with a 55% increase in 215, followed by a 7.1% decrease in 216. In the less than 3 days period, 215 saw an increase of 21% followed by a decrease of 5.4% in 216. Tier 3 lenders have experienced similar patterns of change with the most positive period being less than 1 days where 215 saw a 14.7% increase and 216 that saw a 3.6% increase. Days to offer by lender tier Tier 1 Tier 2 Tier 3 Average < 5 Days (%) < 1 Days (%) < 14 Days (%) < 3 Days (%)

16 16 6. The intermediary is king 6.1 Intermediary sales As noted earlier in this report, sales via intermediaries continues to be the key channel in the mortgage market with an average of 81.7% market share within our participating lenders. The market share has increased primarily because of the introduction of the MMR, which has the provision of qualified advice at the heart of mortgage regulation. Other dynamics in the market have reinforced intermediary distribution including challenger lenders only lending through intermediaries and the variety and complexity of hundreds of mortgage products and schemes that are now available in the market. Reviewing intermediary business last year, the majority of lenders (7%) experienced an increase in the number of applications submitted by brokers, with 24% of lenders seeing applications level and 6% of them seeing a decrease. Looking forward to next year, 47% of lenders expect the number of mortgage brokers in the market to increase and 53% expect numbers to stay level. Anecdotally, lenders have expressed the view that the intermediary market share is close to peaking and likely to level out in 217. Predicted change in broker numbers 53% Increase 24% 6% 47% Stay Level Intermediary lending volumes 7% Increase Stay Level Decrease

17 Social media Love it, loathe it or don t understand it, social media is here to stay. More and more social platforms are appearing and sometimes disappearing. But despite their financial model issues, Twitter, Facebook and LinkedIn remain the three main contenders in what is becoming a diverse marketplace. A recent Huffington Post 4 described how social media was transforming banking relationships in very significant ways. Social media developments are moving beyond customer service and marketing to new services such as Turkey s Denizbank Facebook banking; reducing operational costs and creating new business models. 7.1 Social engagement Of the lenders surveyed, 52% are either active on or considering using Twitter, compared to 9% in 214. Facebook is lower, with 55% active on or considering using Facebook, compared to 8% in 214. LinkedIn follows the same pattern, with 36% considering or active. Across all three social media platforms measured, engagement activity is highest with consumers. As in 214, YouTube is being used mainly for product discovery and explanation. Does this relate to lenders and intermediaries? The short answer is yes. Lenders are engaging through social media with brokers as well as consumers. Take up by brokers appears to be hampered 5 by their worries over compliance and uncertainty on how to use social media effectively. As digital lenders come to market in the coming months, there will be a need across the market to better understand social media and how to use it effectively. Lender engagement with social media Twitter Facebook LinkedIn Not considering 13% Not considering 25% Not considering 35% Consumers 3% Consumers 3% Consumers 6% 4% Intermediaries 22% Intermediaries 5% Intermediaries 47% Active 22% Active 25% Active 18% Considering 3% Considering 3% Considering 18% 52% of lenders are either active on or considering using Twitter, compared to 9% in Huffington Post 5 Brokers view tech and providers as threat to business BmKvXyMhSxTzqzM81dPAPJ/article.html?utm_campaign=New+News+Bulletins&utm_source= Campaign&utm_medium= &utm_content=

18 18 8. Mobile technology In the UK, smartphones are now the most popular way to browse the internet 6 and we buy 23 million smartphones every year 7. Ownership among UK adults of laptops is 79% and tablets is 6%, compared to 76% ownership of smartphones 7. However smartphones lead the way in everyday usage. Each device has its features, benefits and constraints. What is clear is that their owners expect to start a journey on one device and continue seamlessly on another. Omni-channel is now at the heart of the customer experience, a must for any business operating in the retail finance world. According to Ofcom s 215 Communications Data Report 6, smartphones have overtaken laptops as the most popular device for getting online, with smartphone owners using the device for nearly two hours every day to browse the internet, access social media, banking and shopping online. Emerging digital and mobile technologies are changing our daily lives at a breath-taking speed. Banks have been quick to adopt mobile devices, in particular smartphones, to provide a new digital and low cost sales and service channel. No need to queue at your bank to check your balance or pay a bill. Likewise no fumbling for change at the coffee shop check out, just tap and go. But take-up and adoption in the mortgage world appears to be limited compared to other sectors, although our survey has seen an increase of the services provided from last year. Looking across the pond, are there lessons to be learned from the US mortgage market? According to research by Fannie Mae 8 mobile services in the US mortgage space are also less common than in other consumer finance market segments. As in the UK, mobile scan and attach is growing, with 13% of borrowers in the survey saying they had submitted pay stubs and other documents to apply for a mortgage. In terms of apps, about a quarter of US lenders offer a mortgage app and 4% intend to offer one in the future. However, lenders and consumers disagree on the most important feature of a mortgage app, with the ability to obtain a mortgage quote ranked most important by 3% of borrowers but only 6% of lenders. Lenders instead value apps that enable borrowers to pre-qualify for a loan and connect directly with loan officers (mortgage advisers). When developing their own mobile propositions, UK lenders would do well to understand what features the borrower will value most in an app. 6 Ofcom 7 Deloitte Mobile Consumer Survey 8 Fannie Mae

19 Mobile services offered Across all types of smartphone and tablets iphone/pad, Android and Windows there has been a marked increase in mobile services provided by lenders. In 215, most lenders only provided research and affordability services. They are still the two most offered services: research (58%) and affordability (47%). Compared to 215, quote and decision in principle have increased by 185%, mobile case tracking has increased by 72.2% and full mortgage application has increased by 116.6% Mobile services offered Lenders are beginning to move into the digital mobile age. Research Product Comparison Quote Affordability DIP FMA Case Tracking 8.2 Planned mobile services Eight of the 18 lenders in the survey that don t currently offer mobile digital services plan to offer the interactive mobile services shown Planned mobile services Research Product Comparison Quote Affordability DIP FMA Case Tracking

20 2 Conclusion What will the new normal look like? The new normal phrase has been used by commentators a number of times in recent years to describe the changed state of the mortgage market after significant events such as the MMR. The current new normal is the post MMR world we are currently experiencing. The impact of the MMR can be seen in the trends displayed over the last three years of the Mortgage Efficiency Survey in lending, distribution and processing efficiency, described in the executive summary of this report. However the world does not stand still, so what will be the drivers of change to a new normal in 22? Regulation and government intervention such as the recent changes to buy to let will influence the market, as will the largely unknown consequences of the EU referendum. 216 will see the market responding to Bank of England rate cuts, finance market jitters, and a new Prime Minster and Brexit government leading the UK into a new relationship with Europe. That said, many leaders in the mortgage world believe the market is robust and will continue to grow in 216 and beyond. How that growth will be achieved and what the market will look like in 22 is an open question. There are three drivers that will continue to influence and shape the mortgage market: The intermediary is king Unless there are regulatory moves to drive a shift away from advised sales by the regulator, intermediaries will continue to have the lion s share of the gross lending mortgage market in the coming years. The question is has the share peaked and in what ways will lenders invest to ensure they maintain or grow their share of the intermediary market? Technology The digital age is here to stay. Today s systems must be deployable across all devices to provide the user experience that is now expected by consumers. As new technologies and services come to market, the latest open API mortgage platforms enable lenders to switch easily between third party service providers and indeed plug-in new best of breed solutions as they become available. Mortgage technology needs to be smart and adaptable. Service proposition As more lenders come into the mortgage market, many relying on intermediary distribution, the competition for customers and distribution continues to increase. Some lenders have the stack them high and sell cheap automation proposition, others look to differentiate with human not robo underwriting. The winners will be those lenders that can balance the two ends of the selling spectrum, using automation and workflow to drive efficiencies and lower days to offer, with personalisation for those cases and consumers where that will provide the desired service. What will the new normal look like? Although the risk of calling it wrong prompts hesitation, I think lenders will rise to the challenges of recent events that have engendered uncertainty in the market and that we will be able to look back on a successful 216 and say this is what the new normal is.

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22 ANNUAL REPORT 215 / A For further information: IRESS: Debra Knott Debra.Knott@iress.co.uk T: M: The lang cat: Mark Locke / Jenette Greenwood iress@langcatfinancial.com T: M: IRESS UK Limited JN1916v3