Challenging perceptions and maximising potential

Transcription

1 The specialist mortgage market Challenging perceptions and maximising potential Pepper Money White Paper, May 2018 In the first quarter of 2018, Pepper Money commissioned a piece of research into the growing specialist market, including 12 in-depth broker interviews, and a larger broker survey. Our results are collated into this report - we hope you find them insightful and interesting. Interesting case? We re more interested than ever Call Visit

2 Interesting cases, interesting findings We re looking at the bigger picture The specialist mortgage market is growing. Figures revealed by Registry Trust show that CCJs in 2017 reached over 1.1 million for the first time ever in the UK. That s a large proportion of your prospective client base with an interesting credit history. However, only 23% of Pepper Money s completions in 2017 were for clients with CCJs. 74% of our business was for other types of interesting mortgage cases, including your first-time buyer and self-employed clients. When you consider that, in % of all people in work were self-employed, maybe that shouldn t be a surprise 1. Still, the biggest proportion of our business in 2017 (52%) came from applications involving second (complex) income. Together these figures suggest there is more potential than ever in handling interesting cases. Against this backdrop we thought it would be timely to find out brokers perceptions of, and involvement in, the specialist mortgage market. Our research is now complete and we wanted to share the key findings with you in this paper. The results may challenge a few perceptions, but we hope they will also open your eyes to future specialist business opportunities. If you have any questions about our research, or how we can help you grow your business through your interesting cases, please get in touch. Some interesting things we learnt Overall brokers generally feel neutral to slightly positive about the mortgage market, with strong business volumes, low interest rates and lenders who want to lend contributing to this. Advances in technology within the mortgage market are not seen as a threat, with contact with real people still seen as important for both brokers and their clients. The average business split between mainstream and specialist mortgages in 2017 was 85% and 15%. The average business split expected between mainstream and specialist mortgages in 2018 is 83% and 17%, indicating that the specialist market is expected to grow this year. 48% of brokers charge more for handling a specialist mortgage case vs. a mainstream mortgage case. On average, these brokers charge an additional 284 for a specialist mortgage case - 64% more than the average charge for a mainstream mortgage case ( 445). On average brokers spend 2 hours 44 minutes more on a specialist mortgage case than a mainstream mortgage case. That s an average time increase of 27%. This equates to an average hourly fee of 58 for specialist mortgages compared to 44 for mainstream cases. 1 Office for National Statistics

3 Our research: Background and methodology 1. Qualitative: broker interviews 2. Quantitative: broker surveys In January 2018, BDRC conducted 12 one-hour, in-depth interviews with mortgage brokers on Pepper s behalf. These were evenly split across three locations (Manchester, Nottingham and London), with two face-toface and two telephone interviews in each location. The sample group selected by BDRC consisted of: Active mortgage brokers (personally placing at least two cases each month) Senior practitioners in their firms Experienced intermediaries (in the industry for 2+ years) Mixed firm size and regulatory status Mixed sourcing systems Mixed age and gender In February 2018, Pepper added extra questions to the monthly telephone survey BDRC carry out as part of Project Mercury. The extra questions were put to 99 brokers who: All advise customers on which lenders to use Have placed 24+ mortgage cases in the last 12 months Are not tied to a particular lender Are based in the UK NB The sample, sourced from Matrix Solutions, was weighted by firm size and type to be representative of the Matrix Solutions profile. Company Some brokers worked for intermediary firms, or intermediary departments within IFA firms Some were part of an estate agency network Some brokers had a stake in the business Regulatory status 7 directly authorised brokers 5 authorised representatives Length of time as a broker Experience working as an broker ranged from 2 years to 28 years Career path Almost all brokers had a previous financial services background

4 Our findings Brokers feel OK about the market - but the economy and Brexit are a worry The first thing we took from our research was that brokers generally felt neutral or only slightly positive about the overall mortgage market. Strong business volumes combined with low interest rates and lenders who want to lend were a plus. However the positivity was tainted by concern over a potential downturn in the economy, possible rises in interest rates and the uncertainty surrounding Brexit. Over the last 12 months the biggest impact reported on mortgage applications was restrictions imposed upon the BTL market, resulting in a slowdown in cases and fewer first time landlords entering the market. However, there was some evidence that limited company lending is on the increase. It has been a busy year my business has just continued to grow. I ve not suffered at all. - Broker, Nottingham research group Despite technology, relationships are as important as ever Generally speaking technology in the mortgage market (such as robo-advice, price comparison websites etc) is not seen as a threat to experienced brokers. They believe that the process of DIY mortgages online is difficult, and that people aren t comfortable making such big decisions without taking advice, and still prefer face-to-face contact. Similarly, brokers value highly the personal relationships they have with BDMs and are more likely to use a lender based on this. And because brokers are busy, they need BDMs they can rely on for quick information or answering queries on cases. Although an ongoing personal relationship between the broker and BDM is key, an efficient backroom service is important alongside this. This is generally achieved through efficient online systems (including case management and live chat), knowledgeable people in servicing and underwriting functions, and transparent and clear communication. Brokers who had either placed a case or had contact with Pepper gave positive feedback on our good levels of communication, helpful service on the phone, competitive pricing and good levels of engagement. Some brokers noted that they would go to Pepper if they had interesting cases such as adverse credit and credit impaired cases.

5 Specialist lending is on the increase The majority of brokers in our research took on between 8-12 cases a month which was either consistent with, or an increase on, previous years. But for brokers who have been in the industry for 15+ years, this volume is less than the number of cases they were once able to do. Mainstream residential mortgages still make up the largest proportion of work for most brokers. Brokers defined mainstream as covering employed people with a regular income, clean credit history and a healthy deposit. Specialist was defined as covering those with a poor credit history, having irregular accounts or income, older borrowers or those without permanent rights to reside in the UK. Some brokers estimated that specialist mortgages were making up anything from 20-40% of their caseload. But our detailed research indicated a mean business split closer to 85% and 15% in favour of mainstream mortgages. Although specialist lending makes up a smaller proportion, this has notably increased over the year, by as much as 70% in one instance. Some brokers are seeing more applicants who can t be helped through a standard mortgage, such as self-employed, credit impaired or complex income customers. Across our nationwide survey of 99 brokers, the number of specialist mortgages vs. mainstream mortgages was predicted to rise by around 3% in My general view is that specialist business is going to progress to become more mainstream over the months and years to come, as demand grows. - Broker, London 84.7% 82.6% What was the business split between mainstream mortgages and specialist mortgages in 2017, and what are your expectations for 2018? Mainstream Specialist Specialist lending makes up an average of 15.3% of a broker s caseload, but is predicted to rise by 13% in % % 2018

6 What is the average amount of time that you spend on a mortgage case from application through to completion? Specialist lending is still seen as time-consuming, but the reality is different 38% 34% Mainstream Specialist Most brokers are fairly happy to take on specialist cases and won t turn them away the exceptions being instances where they are unable to help the client (e.g. income too low) or get a sense that something in the application may be fraudulent. But specialist cases are perceived to be more time consuming and difficult because of the extra admin required to meet criteria and research required into suitable lenders. 29% 29% However, this perception was not supported by reality. In our nationwide survey of 99 brokers the average amount of time spent on a mainstream mortgage from application through to completion was just over 10 hours, compared to just under 13 hours on specialist mortgage cases. 23% 18% The average amount of time spent by brokers on: 9% Mainstream mortgages: 10hrs 7min 5% 3% 4% 2% 1% 5% Specialist mortgages: 12hrs 51min 1-2 hr 3-5 hr 6-9 hr hr hr Over 49hr N/A

7 Brokers see specialist cases as an opportunity to earn more What is your standard fee for handling a mainstream mortgage case? Broker income levels for 2017 have remained either stable or improved on the previous year. Most brokers have a strategy to increase this, with some targeting trends in the market which align to the specialist mortgages space. Those newer to the industry are open to growing more business in any mortgage area. Brokers charge an average fee of 748 for specialist mortgages compared to an average fee of 445 for mainstream mortgages. When this is divided by the number of hours brokers told us they spent to take a mortgage case from application to completion, this equated to an hourly earning of 58 for specialist mortgages compared to 44 for mainstream cases. 50% - 47% What is your standard fee for handling a specialist mortgage case? Base: All that charge more for handling a specialist mortgage case 40% - 35% 30% - 26% 23% 20% - 21% Mainstream mortgage: 44 p/h 13% Specialist mortgage: 58 p/h 10% - 9% 7% 4% 2% 3% 00% - 1% 0% Over 1500

8 Interesting case? We re more interested than ever Call Visit Aimed at professional intermediaries only; not for public distribution. Pepper Money is a trading name of Pepper (UK) Limited, a private limited company registered in England and Wales under Company Number , with its registered office at Harman House, 1 George Street, Uxbridge, London UB8 1QQ. Pepper (UK) Limited is authorised and regulated by the Financial Conduct Authority under Firm Registration Number PM032_0618_001