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Net challenge

Consumers are increasingly likely to apply for mortgages online and brokers should position themselves accordingly, says Gurnam Bhuller

Many people believe the time has come for smaller mortgage brokers to either embrace technology or risk becoming extinct. Whatever you want to buy, the internet is now probably most consumers’ first point of research. Online sales of mortgages are pro-jected to increase and so we need to assess the implications for brokers and the industry.

A large part of the increase in online customer mortgage applications is in direct business to lenders. They have spent considerable sums on designing websites that attract direct applications from customers through various marketing activities.

Most have invested heavily in systems to enable instant mortgage offers and some are already looking beyond this at creating technology that will produce quicker mortgage completions. They are responsible for driving technology forward in our industry as they realise that it will improve their profitability by reducing their costs.

It could be argued that brokers have been reactive in embracing technology. Most now use the internet to source and place business. This is down to a number of factors including quicker turnaround times, enhanced proc fees and the fact that some lenders will not accept paper-based applications. But how many use technology to increase business levels?

Larger brokers tend to have a website as a bare minimum. Basic websites provide only information on products and rates plus the facility to complete an enquiry form. They act merely to create a presence and provide information on contact points and services offered.

More sophisticated websites offer the sort of interactive facility that allows a viewer to communicate and apply online for mortgages.

Smaller brokers tend to base their business more on word of mouth and establishing links with businesses such as estate agents and accountants.

They place more importance on retaining customers to grow their business and do not have a website, or else have only a basic one. They believe their selling skills and service levels will convince customers to refer them to other interested customers.

While all brokers would acknow-ledge that a website creates awareness and a presence, often it is not a priority due to cost and the resources available. But given changes in customers’ behaviour, can anyone continue to ignore this area?

Whatever we want to buy, more of us now use the internet as a shopping centre. To allow customers to research markets, comparison websites are available in abundance. They inform clients which distribution channel offers the cheapest product they require. Comparison websites usually provide a list of best buys according to answers given to a limited number of questions.

The Financial Services Authority is also keen to provide customers with information on mortgages so that they can make informed decisions. It has a set of comparative tables for mortgage products on its consumer information website and this is as good as most comparison websites offered by brokers.

Most internet products are compared solely on cost but can a mortgage be compared on interest rate alone? From most of these websites customers can apply online, request a call from an adviser or contact a lender directly.

It could be argued that the biggest winners from comparison websites are lenders, as most customers will probably contact the lender direct rather than follow the links that are required by the broker website to generate proc fee commissions.

My experience of using comparative websites for buying products such as holidays and computers is that they provide a good basis of information but I always end up buying directly from the product provider’s website. It would be interesting to know the statistics of converted mortgage applications from customer hits on comparison websites.

The belief among brokers is that most customers need advice to arrange a suitable mortgage and that these websites are used by customers for information-gathering purposes only. How many understand terminology such as early repayment charges, arrangement fees and tracker rates?

Looking through mortgage business written this year by my company, only a handful of cases could have proceeded to online application without advice. Most required attention because they either needed an income stretch, the property was unusual, they had some adverse credit or because of other details such as clients on short-term working visas.

This may be the reason why many smaller brokers don’t see the internet as a big threat to their business on purchase mortgages. Also, brokers tend to be involved in the whole process of an application from explaining how the house buying process operates to liaising with solicitors to ensure satisfactory completion.

And brokers have seen heavily funded ventures such as mortgagebundles.com being launched with huge marketing campaigns only to fail swiftly. This has led to cynicism about how much impact the internet will have on the mortgage industry.

The threat posed by websites to brokers is on remortgage business. It is easier for a customer to compare what they have against what is being offered, and they also have the knowledge gained from previous mortgage transactions. There is also the added competition from lenders keen to retain business.

If a broker does not want to establish a website they can still benefit from clients surfing the internet. Most major comparison websites sell their mortgage leads. The advantage of this is that a broker can increase their lead flow during quieter periods of business and also select the lead types that best suit their needs.

The disadvantage is that these leads cost money and penetration rates tend to be lower than those achieved from referral leads. Also, as these clients were recommended from an internet search engine they often like dealing with advisers who are technology-based and so want a broker to have a website as a bare minimum.

Assuming more mortgages will be applied for online, this could affect distribution models. Networks are acknowledging that internet-based business is growing and some now offer internet-based mortgage leads free or at subsidised prices to their members. Some also offer support and services to allow websites to be launched.

As internet customers will be basing their searches predominantly on cost, will networks have to increase their lender panels to ensure all competitive products appear?

Mortgage clubs for directly authorised firms may need to start offering additional services to retain business. With the exception of the occasional exclusive mortgage deal, most offer no additional benefits to brokers when it comes to mainstream products.

They often get paid a percentage of the proc fee for no involvement in the case. Brokers will be looking at what services they get for sharing their commission.

Packagers will probably not be at risk if more business is transacted online by customers. Most of their business is still paper-based and they tend to be heavily involved in adverse credit and buy-to-let deals.

The broker business most at risk from online customers is mainstream deals and remortgages.

Brokers who want to increase their internet-based business will also need to assess compliance control of internet-based sales. Examples of areas that may need to be addressed are the promotion rules, rules relating to information-only sales and aspects of Treating Customers Fairly.

Online customer mortgages will probably not become the norm overnight as hopefully most clients will still want the reassurance of dealing with someone on a face-to-face basis.

But as clients gain a better understanding of mortgages, more will have the ability to arrange their mortgages online. With more information available freely on mortgage products, brokers need to guard against complacency and start planning.

A good first step would be to establish a company website and gradually evolve this to offer a facility for customers to apply online.

Gurnam Bhuller is director of Mortgage TCOM

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