What a busy start to the year it has been; everyone appears to have the wind in their sails. Given the strength of broker distribution in 2014, I am feeling optimistic about our medium-term future.
In my first article of 2015 I want to explain why I think brokers will have the greater share of the mortgage market over the next five years. Association of Mortgage Intermediaries chief executive Robert Sinclair recently said that the broker channel had a 65 per cent share of total mortgage distribution in 2014 and is set to grow further. I believe a 75 per cent market share will be achieved by 2019.
First, the parts of the mortgage market that are likely to see growth over the next few years are those led by brokers. Whatever your political hue, the need to build more affordable homes is undeniable and housebuilders are committed to building more new homes per annum in 2015 and beyond. Mortgage brokers are leaders in this space, completing almost all new home/shared ownership mortgage products. Therefore, brokers can expect greater returns from this sector over the coming years.
Mortgage Advice Bureau new homes director Andy Frankish said in a recent article that, if housebuilding were to increase by 50 per cent to a relatively conservative 180,000 homes a year, the sales would all be made through broker-served mortgages.
Brokers are leaders in this space because bank branch staff cannot appropriately serve or cover the part-ownership, shared equity, local authority mortgage options being developed in this sector. Specialism and expertise are essential and brokers will continue to serve this entire area of the market.
It is a similar story in the growing private rental market. This sector will grow more quickly than any other in the next five years and homeownership figures from the Office of National Statistics support this.
Some of the growth in the sector will come from institutional investment, which will be commercially funded. Pension funds will be invested in blocks and block/estate management as well as build, as the demand for new housing grows. Although there is no real opportunity for brokers here, the smaller landlord involvement will also grow and that will mean an increase in buy-to-let lending. In particular, most landlords will not acquire finance by shopping in bank branches but through brokers, so intermediaries’ market share will remain 90 per cent-plus.
My final point is more defensive. Lenders, particularly smaller ones, are finding out the true cost of the MMR to their mortgage consultant network. The costs of gaining qualifications, management, compliance oversight and file quality checking are all high and lenders’ conduct and credit risk departments are making their in-house channel expensive and slow to react.
These lenders have come to realise what an outstanding job brokers do when they take all those tasks off them, and assume the full advice risk. As a result, I expect proc fees to edge up over the next few years and some lenders to exit distribution selling as the economics become untenable.
In summary, brokers are best placed to take advantage of any reorientation of housing transactions and of growth in the housing market over the next five years. They already have a 65 per cent share of the mortgage market and the market structure is such that this will increase further.
Intermediaries are positioned to benefit from the high-growth markets and they are also a great option for lenders as the economics of distribution are laid bare post-MMR. Brokers will climb to three-quarters of the total and lenders will increasingly recompense them for this.
Happy 2015 and let’s all go out and make the most of it.