From our perspective, one of the key lessons brokers can learn as a result of the coronavirus outbreak is around the mix of business you write and the effect it has on your income.
Clearly, there have been significant dips in certain areas, with purchase business naturally suffering the most.
Our own figures for Stonebridge reveal how the virus and the subsequent lockdown have placed considerable downward pressure on both home mover and first-time buyer mortgage application numbers, and the expectation has to be that until we see significant movement as a result of the change in government measures, this is likely to be the ‘tale of the tape’, so to speak.
The more positive news is that, as I write this, we are seeing the start of the relaxation of lockdown which is sure to provide a boost to the housing market, especially given the return of physical valuations. Our sister company, SDL Surveying, made meticulous plans for the eventual return to physical inspections, including working on new operating protocols (in conjunction with bank and building society partners) and ordering a shed load of PPE, well in advance.
The benefits to mortgage advisers of this will be obvious, but we should not anticipate a dramatic increase in purchase business as soon as this phase one easing of lockdown takes hold. This could be much more of slow-burn and one that will gradually improve in the weeks to come.
Which makes the other parts of the mortgage market, and associated products such as protection and GI, even more important to firms in terms of maintaining levels of income during this period.
One point I’ve heard made a lot since lockdown is how important recurring and ongoing income has been to advisory practices. If we wanted to highlight the difference that protection or GI sales have made, during a time when mortgage business has fluctuated greatly, then it’s this period that will do it.
Without even considering the vital importance that protection cover has provided to clients at such a time, we know that firms who have worked incredibly hard at seizing the protection opportunity in recent years, are the ones who are going to have that recurring income foundation that selling these policies provides.
It also brings home to us as a network that continuing to reiterate the protection message to our member firms has been absolutely the right thing to do and that focusing on upping the penetration rates in these important, related areas will hopefully have delivered better consumer outcomes as well as giving firms some income stability during this highly unusual period.
There are also other avenues to pursue, or approaches to review, in the mortgage market which will mitigate firms against an income reduction that may begin to appear perilous for many.
Take, for instance, remortgage and product transfer (PTs), which might be described as two halves of the same coin, especially now. All lenders and brokers have seen a real spike in PT activity during the last couple of months and, while we appreciate this was to some extent a reflection of product availability, firms need to have a close eye on suitability and advice standards. We all know that PTs are the right solution for many, but some brokers almost certainly use them as an easier route, when a remortgage could be a better option.
As we know, the majority of lenders pay a dramatically lower procuration fee for PT business, and while I’m sure the full suitability and advice process has been followed, there is a danger that firms could be inviting further regulatory scrutiny if a spike in PT business can’t be justified.
Clearly there has been a ‘needs must’ approach during March and April such that the PT option looks like it makes sense, but certainly as we see more lenders coming back to market, LTV maximum levels on the rise, and much more attractive remortgage options available, firms need to look very carefully at their recommendations and whether a remortgage delivers a better outcome.
Brokers appear to be coping very well despite the seismic changes in our market over the last quarter. It’s impressive to see the extent to which advisers and firms have turned their focus onto reviewing client banks and to arranging more protection and GI, as new purchase business has created the capacity to do so. The trick we all need to pull off, is continuing with current levels of remortgages, protection and GI, when brokers’ diaries start to get busy again with purchase business.
Rob Clifford is chief executive of Stonebridge