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Cover story: Who knows best?

Thanks to the internet, financial consumers are far better informed than their predecessors. But brokers’ expertise goes way beyond the web so they must keep demonstrating their worth

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Brokers are the life-blood of the mortgage market, with two-thirds of home loans sourced via an intermediary, but in the modern age where online financial information is widely available and clients are becoming more empowered, is their place at the top of the knowledge tree under threat?

Only last month, an independent review into the Money Advice Service recommended that the Government-established body should focus on filling gaps in the market and avoid duplicating services offered by other providers of financial education and advice.

This highlighted just how much financial information is now publicly available, particularly on the subject of mortgages. However, brokers point out that their expertise extends far beyond basic information – albeit many firms still have much work to do to master the digital world.

Such is the plethora of free information available to borrowers on the internet – both for mortgage research and on the wider financial services market – that a key recommendation by the MAS report’s author, Consumer Futures chief executive Christine Farnish, was that the MAS should focus on debt advice because so many tips and items of general advice are available to the public already.

In general, therefore, consumers are more knowledgeable and empowered about their finances than they have ever been.

Head of Halifax Intermediaries Ian Wilson says: “There is no doubt that it is easier for people to carry out their own research but the level of knowledge varies from customer to customer.

“As time goes by, the next generation of borrowers will be even more comfortable dealing online so it will be important for brokers to have a profile to ensure they keep those opportunities going.”

Numerous newspapers, consumer websites, product providers and brokers themselves provide online, printed or PDF guides and other detailed information on mortgages. Online calculators enable borrowers to work out how much a particular mortgage would cost, how much they can borrow, whether they should ditch their fixed-rate deal, whether an offset would work out best – and much more.

Then there are the price comparison sites that list the top rates. The better ones also spell out the fees involved and enable users to search for a specific mortgage to suit their needs, whether by length of introductory deal, fixed or variable, first-time buyer or remortgage, and at different loan-to-value amounts.

However, some experts believe that consumers’ increased knowledge, whether of how the market works or the true cost of a deal, may in fact be a façade.

Santander head of intermediaries Brad Fordham says: “With the dawn of the internet, headline rates are more widely visual. But the true cost of those rates with booking fees and early repayment charges is still not clear and myths around mortgages still exist.”

Anderson Harris director Adrian Anderson adds: “As brokers, we have to do a lot of hand-holding, although the level of knowledge clients have varies significantly.

“Surprisingly, some high-calibre applicants are very naive regarding the mortgage market and process. Many people are familiar with the basic concept of mortgages but borrowers can’t rely on best-buy tables, adverts and promotions because everyone’s circumstances are different and every lender has its own criteria and quirks.”

In the headlines

Consumers’ financial education has also benefited from personal finances being higher up on the news and political agenda. On a slow news day, a simple press release from Moneyfacts on the latest mortgage rates can hit the front pages.

The financial crisis has led politicians to keep a sharper eye on personal finance, putting issues under the spotlight for debate. Much of this has been directed at the housing and mortgage market, with schemes such as Help to Buy and the soon-to-be-launched Help to Buy Isa, plus reforms to stamp duty, all grabbing the headlines.

Since September 2014, financial education has been on the school curriculum in England, although it will take years to feed through to consumers’ better understanding of personal finances. However, the subject is compulsory in only around half of English schools.

Fordham says: “It’s hard to see how financial education will change the mortgage market but education around how banks work and helping people from an early age to manage their money responsibly is a really positive step.”

Adding value

A more informed public undoubtedly means that some broker business will be lost from clients who feel confident about going direct. So how can brokers make their offering stand out?

They add value by holding their client’s hand when required: sourcing deals in more complicated cases and providing good advice to those who need it, whether on the best mortgage to choose or even if the client should be buying a home at all. But how do they get that value message across to the public?

Wilson says: “Brokers need to be up to speed digitally as customers increasingly have already had experience of marketing tools from lender websites, so product knowledge is key.” 

 “They need to be fluent in lenders’ criteria too. It’s important to establish and understand what individual lenders will and won’t do, and brokers are best placed to know and advise on this. A customer could spend many hours moving around various lenders and, without help from a broker, this could mean a potential impact on their credit file.”

Online research has become a key part of consumers’ decision-making processes so it is no surprise to hear industry figures urging brokers to harness the power of the internet.

This tends to be more challenging for smaller brokers, who may lack the resources or expertise to master the web. It is not a simple case of creating a website; today that site must be accessible from a mobile phone, given the huge number of people who use a smartphone as a computer. Depending on which piece of research you read, between 30 per cent and 60 per cent of internet traffic now takes place on a mobile – and that number is growing.

Mortgage Strategy examined some major brokers’ websites and found that many were not fully mobile phone-optimised, meaning that smartphone users see the same design as on a desktop or laptop computer, which makes it more difficult to read and interact with on a much smaller screen. Some calculators do not work at all on a mobile phone.

Notable exceptions to these  findings included John Charcol and London & Country, both of which offer mobile-optimised websites.

Search engine optimisation

Another key challenge for brokers is to get their website to the top of search engine results, with Google in particular employed by internet users in search of companies to help them.

Mortgage Strategy conducted some basic research to determine how highly brokers ranked on Google when key search terms such as ‘cheap mortgages’ and ‘mortgages’ were used. 

Ensuring our internet browser was set to ‘private’ – meaning the results could not be influenced by websites we had previously viewed – we found not one broker on the first page of Google under either search term. Instead, price comparison sites, newspapers, consumer sites and lenders dominated. 

Website Mr-SEO (which stands for search engine optimisation) says 91.5 per cent of Google traffic derives from a first-page search and 93 per cent of buying decisions start with an online search.

While not all brokers may yet master the internet, their industry expertise is clear.

“Online research can certainly help consumers but it’s not always about the best rates and this is where brokers add real value,” says Scottish Widows Bank director Gordon Bowden. 

“Being better informed means customers may have an idea of what they want but, in many cases, borrowers still want to use a mortgage broker.”

He adds: “When you are looking at more complex cases such as professional or offset mortgages, the value of a broker becomes apparent. 

“Many customers would find it difficult to get the level of detail they need to fully understand these types of product. But good brokers understand which lenders are likely to be able to offer a mortgage – especially in marginal cases – and which lenders have the best service levels.”

Cherry Mortgage & Finance broker Matthew Fleming-Duffy says: “As much as you could re-wire your own house, install double-glazing or even conduct open-heart surgery using information sourced from the internet, you can also manage your own finances. 

“But sourcing the correct financial solution for yourself can be a potential minefield and, based on the high level of misinformation and personal opinion generally found on the internet, can be very costly if you get it wrong.

“Financial intermediaries are specialists in personal finance. You may look to arrange a mortgage only once every few years but a mortgage adviser is probably arranging a dozen mortgages, or more, each month.

“That current, and extremely relevant, experience usually pays dividends when sourcing the correct lender and assisting with the mortgage application process, which – following the MMR – has become fraught with increased difficulty.”

The match-up

These comments highlight the fact that brokers are especially useful in matching a borrower with the right lender. 

With easier cases, this entails a simple fact-find and then sourcing the cheapest option within the range of deals required. However, in many instances it can prove difficult, such as when the client is self-employed, has a patchy credit history or is buying a non-standard property.

Here a broker can come into their own, whereas anyone going direct could encounter problems unless they know the market inside out.

Some details of lenders’ criteria can be hard to find on their standard website but are usually available on the pages designed for brokers. It is safe to assume, however, that many consumers are unaware that such intermediary websites exist, while others may not realise that criteria can vary between lenders. 

Mortgage Strategy examined some major lenders’ intermediary web pages. It found that Santander’s criteria may hinder borrowers seeking a mortgage on a short lease. The terms state: “In some cases where the minimum term is less than 80 years, it may be regarded as unacceptably short.”

Meanwhile, Nationwide’s terms may trip up those who want to buy a flat in the same block as commercial premises. Its criteria state that it may not lend on a property if “commercial activities in the block are likely to cause a nuisance by virtue of noise, smell or unsocial hours”.

The lender may also say no if the client needs to gain access to the property via the commercial premises.

While these issues should be spotted early by the lender when the borrower applies, valuable time will still have been wasted, which can be critical when there is a delicate chain involved or a deadline has been imposed. And if the problem is not spotted immediately, it can affect the borrower’s credit file because the application is registered, potentially hampering their chance of being accepted by another lender.

Useful leg-work

Brokers can also add value by doing a lot of the leg-work for clients, according to SPF Private Clients chief executive Mark Harris. He says: “Whatever the borrower’s income, personal details, unusual requirements or property make-up, brokers will know where best to place that mortgage application, given the circumstances.

“Clients may be time-poor, so they can’t wait several weeks for an appointment or spend three hours in an interview only to find they are not eligible. With a broker, just one fact-find is required so that they can approach a number of potential lenders to get the best deal.

“The broker will speak to lenders on behalf of the borrower and manage the process from start to finish. Given how quickly properties can come on and off the market, brokers also know the best and quickest way to aid the client in securing the property.”

Those who choose to go it alone may also miss out on certain deals, given that some lenders trade only via intermediaries. 

Of course, brokers cannot access every deal either, but a good broker who claims to be whole-of-market should advise their client of the best deal, even if it is available only direct with a lender.

Market complexities

The role of the broker has become even more important thanks to the growing complexities of the market. The Mortgage Market Review, which put in place far tougher criteria last April, is the most recent example.

Although many lenders had gradually tightened their fists in the months prior to the MMR, the change put more obstacles in the way of clients, such as far tougher requirements to prove their income.

For example, only a few years ago it was possible to borrow on an interest-only basis at 100 per cent LTV. But many lenders now impose much tougher restrictions for interest-only deals, across LTV, affordability and proof of repayment. So a borrower with a higher LTV may need an expert’s help to find the right lender.

Fleming-Duffy highlights another area where brokers can shine in the face of tougher criteria.

He says: “Importantly these days, they essentially help with the initial underwriting of a client’s circumstances, improving their acceptance chances.”

The MMR has also led to more business being conducted via intermediaries, partly because lenders have sought to outsource their compliance burden to brokers.

Fordham says: “Pre-MMR, there was a 50/50 split between intermediary and direct lending. Post-April 2014, the landscape has changed and the market is now 65/35 intermediary.”

Intermediaries undoubtedly have further to go in immersing themselves in the digital age. But given that broker business is growing, the market appears well equipped to take on the potential threat to its future from a better-informed public.   

 

Financial education will underline the importance of advice

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David Hollingworth, London & Country communications director

The internet is a great source of information and it is rare for a client not to have at least conducted some research online before getting in touch with a broker or, indeed, a lender.  

As much as the growth of internet-based information and of the ability to transact online has been expected to chip away at the number of people using a broker, little seems further from the truth. The changes in the market in recent years have served only to highlight the strengths of the broker. 

Although borrowers can search online through reams of product options, it remains difficult to be sure that what they select will be the best option.  

Even harder is the ability to determine whether the product they settle on will still be available once their finances have been put under the microscope. With most borrowers still rarely confident enough to go ahead and buy entirely online, they are now faced with having to wait for a lender appointment, with no guarantee that they will meet the criteria at the end of it.

Clients are well aware that finding the lowest rate is now only part of the equation and that targeting the search on the right lender from a criteria point of view is crucial.

Even where problems subsequently arise, a broker will be able to move quickly on to an alternative, rather than have to start from square one. In addition, a broker will provide an ally for the client if a problem rears its head, and provide a more effective communication channel into the lender. That message in particular seems to be hitting home with borrowers.

Lenders too can see that in providing an advised service the intermediary channel offers a valuable method of distribution. As a result, the share of the market heading to intermediaries is on the rise.

Borrowers can now consume a lot more information and therefore will have some appreciation of the basics. However, often they are also keenly aware that there is a formidable array of rates, fees and features, meaning they could easily fail to spot the best option.  

Why would they not seek independent advice when it does not even cost a fee in many cases? At worst, they will get confirmation that they had picked out a good deal; but at best, they could save time and money going for a better fit for their circumstances.

I do not think financial education will do anything other than underline the importance and availability of advice for borrowers. In fact, a lot of what brokers do is to help that education process by guiding clients to the right option. But more financial education for younger people should be a good thing for both the market and
the consumer.

Technology has brought big gains to the broker industry and although we have gone back a degree to a market where more documentation is required, technology makes that easier to deal with. Online submission and case tracking is the norm that brokers expect from lenders.

However, brokers must recognise that they need to keep pace with how they communicate and deal with their clients. For example, we have our own portal to allow customers to see what stage their application has reached and we can communicate with them by text and email, as well as post.

In addition, the ability to provide helpful information online and an ongoing dialogue with clients through newsletters, blogs and social media should be embraced. Partnerships have long been an important way to generate leads for brokers and technology should only help broaden the scope.

 

Helping people plan ahead

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Caroline Rookes, Money Advice Service chief executive

Buying a house is the biggest purchase of a consumer’s life, so a mortgage is a huge commitment. It is important for consumers to have easy access to information and advice to help them navigate the complex world of mortgages and make good decisions based on an understanding of what different options mean for their finances in both in the short and the long term.

Digital technology is ever evolving and, with it, the volume and type of support available to people embarking on a homebuying journey. There is an increasing amount of information in the public domain to help with the process.

In addition, organisations from banks and estate agents to consumer websites are helping people to make choices by providing advice, comparisons, hints and tips.

The Money Advice Service is one such organisation. We were set up by the Government to help people get the most out of their money. We provide a broad range of impartial information about buying a home, including mortgage and stamp duty calculators to ensure that consumers can make informed decisions based on what they can afford.

One of our main focuses is helping consumers to understand the full costs associated with buying a home and what this means for their finances now and in the future. We want them to take into account all the costs involved, such as stamp duty, valuation, conveyancing and potential repairs, as well as the fees and repayments associated with getting a mortgage. This can help them to be money smart and avoid financial shocks in the future.

What we cannot do is offer regulated advice on specific products, which is why mortgage brokers are so important, especially since the Mortgage Market Review. 

To ensure that people know when they need professional help and how to get it, we make clear recommendations throughout our content for all consumers to seek regulated advice from either a mortgage broker, an independent financial adviser or a lender. This is an important part of the homebuying process and so we also highlight the risks should people decide not to take this course of action.

Christine Farnish’s recent report on the MAS posed some challenges to the way we provide money advice. One clear conclusion is that we should not duplicate the excellent services that already exist in the marketplace but provide more effective signposting to others.

We have already decommissioned our mortgage comparison table. However, we are clear that in 2015/16, we need to step up our activities in helping people plan ahead for key life events, and that includes supporting people to save up for a house purchase. 

By doing this and working closely with the industry, including mortgage brokers, we can provide the best possible support for consumers.

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