Mortgage distribution in the United Kingdom is still dominated by intermediaries, with the broker channel accounting for 60 to 70 percent of total mortgage sales in 2014 and 2015. But it’s becoming clear that mortgage intermediaries must adopt new approaches if they are to maintain their current strong position.
With the expanding range of channels for borrowers to access mortgages and the evolving demographics and financial sophistication of mortgage customers, intermediaries will have to develop new ways to interact with both lenders and customers, while fulfilling their vital role of linking the two.
As lenders adapt to regulatory changes and respond to rising customer expectations, delivering new technologies to help provide the complete “my home” end-to-end customer journey, they may start to refocus on direct channels, particularly digital. However, looking to the longer term, lenders must invest in building relationships with intermediaries if they’re to remain competitive.
In the long term, we believe the need to sustain profitability, drive efficiencies and fend off competition from new entrants will prompt lenders to embrace an omnichannel approach to engage directly with customers.
In this context, the FCA’s “Project Innovate” is a step in the right direction toward creating a regulatory environment that facilitates and encourages innovation without negatively impacting customers.
Looking at the medium to long term, we see three developments likely to affect innovation in the UK mortgage market:
Robo-advisers. Lenders and intermediaries will leverage automated robo-advice for dealing with simple mortgage and re-mortgage cases, and use adaptive learning to manage complex cases.
Mayday services. Investments will include remote “Amazon Mayday”-style screen-sharing and video capabilities to support customers and intermediaries alike.
Mobile millennials. Lenders providing online mortgage approvals and case tracking will enable millennials to more often use smartphones and tablets to apply for and originate mortgages.
There are arguments both for and against the idea that the days of mortgage intermediaries are numbered, but our analysis points to the development of an ecosystem in which mortgage intermediaries remain an important part of the market.
The next three years will see further radical change in the UK mortgage market as competition intensifies and lenders use new technology and rising customer expectations as a springboard to improve profit margins.
These shifts will foster the emergence of a new intermediary model—one that is more tightly coupled and aligned with the needs of both lenders and customers. To prepare for this new model, intermediaries are already starting to reposition their technology and offer a widening range of value-adding services.
To secure their future in a new and more integrated mortgage ecosystem, lenders will need to strengthen their relationships with intermediaries—and help build and participate in an ecosystem of home lending and buying that is increasingly connected.
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