TABLE OF CONTENTS
Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Difficult market conditions for mortgage intermediaries persisted throughout 2010 2
There are several different distribution channels for mortgages in the UK 2
The number of intermediaries continued to fall in 2010 3
Trend: Datamonitor predicts tough conditions for intermediaries for many years 4
Insight: intermediary-sourced lending will grow modestly under the neutral forecast 4
Trend: intermediaries are less hopeful about the state of the market than they were last year 5
Insight: brokers believe that a recovery is further away than before 6
Trend: intermediaries have become more pessimistic about their own prospects 6
Insight: the proportion of brokers who believe they will do more lending in the coming year has fallen 7
Trend: brokers are changing their business practices to reflect the new reality 7
Insight: brokers are starting to charge upfront fees 7
Trend: lenders are directing their efforts towards direct distribution 9
Insight: brokers feel they are losing market share to lenders 9
Trend: broker incomes are continuing to fall 10
Insight: there has been an increase in the proportion of brokers reporting falls in product commissions 10
Defining the Intermediary Sector 22
Difficult market conditions for mortgage intermediaries persisted throughout 2010 22
There are several different distribution channels for mortgages in the UK 22
The number of intermediaries continued to fall in 2010 23
The industry is now leaner but also fitter 24
Half of intermediaries report having no more than 500 clients 25
Individual brokers have seen a slight upturn in activity 26
Mortgage volumes remained steady in 2010 26
There has been an overall increase in the value of mortgages arranged by brokers 27
Individual brokers saw a fall in the value of mortgages arranged in 2010 28
Buy-to let lending was the least badly affected category of mortgage in 2010 29
The share of lending claimed by brokers has fallen drastically since 2007 and 2008 31
Quarterly lending arranged by intermediaries is two thirds lower than at the top of the market 32
Intermediary lending has fallen at a greater rate than total market lending 33
Intermediaries choose providers on the basis of rate and level of support 34
Rate, reliability and quality of service are all key to choice of lender 34
Procuration fees are of lesser importance than rate and service-based factors 35
Rate, speed and service all play a role in persuading intermediaries to switch lenders 36
Intermediaries appear to be only mildly concerned about key aspects of the market 37
Commission levels are a cause for slight concern 37
Concern with receiving adequate support from networks has declined over the last two years 37
The mortgage market is concentrated in the hands of a few large providers 38
The big banks have increased their dominance of the mortgage market since the banking crisis 38
Intermediaries are dependent on a select few lenders 39
Market Context 41
The lack of credit availability is still restricting lending 41
The aftermath of the credit crunch continued to hold back activity in 2010 41
The first time buyer market remains badly affected by the lack of mortgage finance 42
A sizeable proportion of consumers are still being refused credit 42
Consumer demand for mortgage finance was also subdued in 2010 43
A lack of both demand for and supply of mortgage finance resulted in low lending levels in 2010 44
2010 was a less turbulent year for mortgage networks 45
Far fewer networks found themselves in difficulty in 2010 than in 2009 45
Some networks have seen considerable changes in their AR numbers 46
Remortgaging activity continues to be hit by the low base rate 47
Remortgaging flatlined throughout 2010 47
The lack of consumer demand for remortgaging is confirmed by Bank of England data 49
Remortgaging is likely to remain low throughout 2011 49
The FSA is still in the process of reviewing the regulation of the mortgage market 50
The FSA has published a consultation paper on distribution and disclosure 50
Industry reaction to the FSA's latest proposals on distribution has been non-committal to date 51
The FSA has decided to postpone the extension of the Approved Persons regime to the mortgage market 51
The FSA's proposals could give a boost to intermediary-led sales 52
The FSA's reaction to industry criticism has led to uncertainty over the final shape of the MMR 53
Lack of clarity on the gestation of the MMR has led many brokers to withhold judgment 53
Insights for Intermediaries and Lenders 55
Trend: Datamonitor predicts tough conditions for intermediaries for many years 55
Insight: intermediary-sourced lending will grow modestly under the neutral forecast 55
Insight: the optimistic scenario assumes that providers will return more quickly to indirect distribution 56
Insight: under the pessimistic scenario, intermediaries continue to suffer from a stagnant market 57
Trend: intermediaries are less hopeful about the state of the market than they were last year 58
Insight: intermediaries are more gloomy about the chances for an improvement in consumer demand 58
Insight: there has been a big rise in concern about stagnant buyer numbers and property prices 59
Insight: intermediaries appear resigned to the end of non-standard lending 60
Insight: brokers believe that a recovery is further away than before 61
Insight: half of intermediaries think the downturn in property prices will last at least two to three years 61
Trend: intermediaries have become more pessimistic about their own prospects 62
Insight: a far bigger proportion of intermediaries think that their market share will fall than did so last year 62
Insight: buy-to-let is the only sector for which brokers think sales prospects have improved since last year 63
Insight: the proportion of brokers who believe they will do more lending in the coming year has fallen 65
Insight: the new mortgage broking arm from consumer advocates Which? may pose a threat to brokers 65
Trend: brokers are changing their business practices to reflect the new reality 66
Insight: diversification is the key to survival 66
Insight: cost-cutting remains very much in evidence 68
Insight: brokers are starting to charge upfront fees 68
Trend: lenders are directing their efforts towards direct distribution 70
Insight: providers are maximizing direct sales at the expense of the intermediary channel 70
Insight: brokers feel they are losing market share to lenders 71
Insight: dual pricing is the device lenders are using to promote direct distribution 72
Trend: broker incomes are continuing to fall 74
Insight: absolute incomes are in decline 74
Insight: there has been an increase in the proportion of brokers reporting falls in product commissions 75
Insight: concern is rising about downward pressure on procuration fees 77
APPENDIX 79
Supplementary data 79
Definitions 99
Appointed representative 99
Buy-to-let mortgage 99
Directly authorized 99
Fixed rate mortgage 99
Mortgage club 99
Mortgage intermediary 100
Mortgage network 100
Non-standard 100
Sub-prime 100
Packager 100
Self-certification mortgage 100
Methodology 100
Further reading 100
Ask the analyst 101
Datamonitor consulting 101
Disclaimer 101
LIST OF FIGURES
Figure 1: The structure of mortgage distribution in the UK 2
Figure 2: Mortgage intermediary numbers have been in decline since 2007-8 4
Figure 3: Intermediary lending will rise to just over £90 billion by 2014 under the neutral forecast 5
Figure 4: Less than two in five believe the market will recover within the next four years 6
Figure 5: Predicted change in value of lending over next 12 months 7
Figure 6: There has been a fall in the proportion of brokers' income that comes from commission 9
Figure 7: Three quarters of brokers think their sector is losing market share 10
Figure 8: 70% of intermediaries stated that per-product commissions have fallen 11
Figure 9: The structure of mortgage distribution in the UK 22
Figure 10: Mortgage intermediary numbers have been in decline since 2007-8 24
Figure 11: Intermediaries with a maximum of 1,000 clients accounted for half the market in 2010 25
Figure 12: Change in customer base over last 12 months 26
Figure 13: Amount of mortgages arranged by volume in last 12 months 27
Figure 14: Half of brokers arranged £5m or more worth of mortgages in 2010 28
Figure 15: Six in 10 intermediaries saw the value of lending fall in 2010 29
Figure 16: Gross lending across nearly all mortgage types continued to fall in 2010 31
Figure 17: Intermediary share of mortgage lending has drifted down since the start of 2008 32
Figure 18: The value of broker-arranged mortgages stagnated throughout 2009 and 2010 33
Figure 19: Intermediaries are claiming an ever smaller share of the total market 34
Figure 20: Brokers rated most attributes as being of high importance when deciding on provider 36
Figure 21: Importance of factors in persuading intermediaries to switch lenders 37
Figure 22: Brokers do not appear unduly worried about most key aspects 38
Figure 23: The UK mortgage market is dominated by a handful of large providers 39
Figure 24: Santander and LBG dominate lending arranged through intermediaries 40
Figure 25: Mortgage credit supply remained tight throughout 2010 41
Figure 26: First time buyers form an insignificant market for most intermediaries 42
Figure 27: A quarter of brokers' customers were ultimately unable to obtain credit 43
Figure 28: Monthly gross lending was just as depressed in 2010 as it was in 2009 45
Figure 29: Some of the largest networks have experienced a drop in practicing members 47
Figure 30: Remortgage approvals have failed to show any sign of recovery to pre-crisis levels 48
Figure 31: Demand for remortgage credit 49
Figure 32: Most intermediaries feel unable to express strong opinions about the MMR's impact 54
Figure 33: Intermediary lending will rise to just over £90 billion by 2014 under the neutral forecast 56
Figure 34: Intermediaries will account for £105 billion worth of lending in 2014 in the optimistic scenario 57
Figure 35: Under the pessimistic scenario, intermediary lending will reach a little under £79 billion in 2014 58
Figure 36: There is less optimism about consumer demand and lenders' ability to take on more customers 59
Figure 37: There has been a substantial increase in concern over the number of buyers and property prices 60
Figure 38: Less than two in five believe the market will recover within the next four years 61
Figure 39: A large proportion of brokers think that the downturn in property prices will be prolonged 62
Figure 40: Half of brokers expect to see the intermediary share of the market fall by more than 10% in 2011 63
Figure 41: Sales prospects for even the strongest sectors are no better than neutral 64
Figure 42: Predicted change in value of lending over next 12 months 65
Figure 43: Hal of those who have suffered a fall in income have branched out into other areas 67
Figure 44: General insurance, life insurance and pension are the most popular sectors for diversification 68
Figure 45: There has been a fall in the proportion of brokers' income that comes from commission 70
Figure 46: Two thirds of brokers believe that lenders are favoring direct distribution 71
Figure 47: Three quarters of brokers think their sector is losing market share 72
Figure 48: Dual pricing is driving direct sales of mortgages 74
Figure 49: Seven in 10 brokers stated they had seen a fall in fee or commission income over last 12 months 75
Figure 50: 70% of intermediaries stated that per-product commissions have fallen 76
Figure 51: Proportion by which income levels per product have fallen 77
LIST OF TABLES
Table 1: Total number of ARs and DA firms specializing in mortgage finance 79
Table 2: Datamonitor forecast for intermediary vs. total market lending, 2010–14 (neutral) 79
Table 3: Length of time intermediaries expect for gross lending to recover to pre-crisis levels 80
Table 4: Predicted change in value of intermediary lending over next 12 months 80
Table 5: Proportion of income derived from commission rather than fees 81
Table 6: Whether intermediaries are losing share of new lending to direct distribution 81
Table 7: Whether intermediaries have seen fall in average income per product over last 12 months 81
Table 8: Size of current customer base 82
Table 9: Change in size of customer base over last 12 months 82
Table 10: Volume of mortgages arranged over last 12 months 82
Table 11: Value of mortgages arranged over last 12 months 83
Table 12: Change in value lent over last 12 months 83
Table 13: Change in gross advances over last 12 months, by mortgage type 83
Table 14: Intermediary share of market, by value 84
Table 15: Value of loans arranged by intermediaries 85
Table 16: Value of intermediary loans vs. value of total market loans 86
Table 17: Importance of factors in choice of main lender 87
Table 18: Importance of factors in persuading intermediaries to switch lenders 87
Table 19: level of concern with issues facing business 88
Table 20: Lender share of gross lending 88
Table 21: Proportion of intermediaries using each provider 89
Table 22: Quarterly change in demand for and supply of secured credit (%) 89
Table 23: Proportion of intermediaries stating share of business derived from first time buyers 90
Table 24: Proportion of customer turned down due to difficulties in obtaining credit 90
Table 25: Monthly gross advances (£m) 91
Table 26: Size of leading mortgage networks 91
Table 27: Value of monthly mortgage approvals (£m) 92
Table 28: Annual remortgaging approvals £m) 93
Table 29: Quarterly change in demand for remortgage credit (%) 93
Table 30: Expected impact of FSA's Mortgage Market Review on intermediaries' business 94
Table 31: Datamonitor forecast for intermediary vs. total market lending, 2009–13 (optimistic) 94
Table 32: Datamonitor forecast for intermediary vs. total market lending, 2009–13 (pessimistic) 94
Table 33: Views on situation over next 12 months 95
Table 34: Issues of concern to intermediaries over next 12 months 95
Table 35: How long downturn in property prices will last 96
Table 36: Predicted change in intermediary share of gross lending over next 12 months 96
Table 37: Sales prospects for mortgages over next two years 96
Table 38: Actions taken by intermediaries that have seen fall in income 97
Table 39: Areas that intermediaries have moved into to deal with loss of income 97
Table 40: Whether lenders are focusing on direct distribution at the expense of intermediaries 97
Table 41: Actions taken by lenders to increase direct distribution 98
Table 42: Whether intermediaries have seen a fall in income over last 12 months 98
Table 43: Whether intermediaries have seen fall in average income per product over last 12 months 98
Table 44: Degree by which average income per product has fallen 99