What future is there for mortgage brokers in a market characterised by rock-bottom transaction volumes, with severely limited funding for buyers who are too nervous to get into the market anyway, even in the unlikely event they could secure a mortgage?
This perfect storm of problems is already having a serious impact on brokers big and small, with Cobalt Capital, Chase de Vere Mortgage Management and Hamptons Mortgages just some of the higher-profile names forced to close their doors in recent weeks.
Those brokers still in a position to fight another day have seen their profits slashed, with Savills Private Finance, for example, recently announ- cing it had managed to turn a profit of 400,000 in 2008, but this was down from 5m in 2007.
Managing director Mark Harris said the important thing for the group was that it is in the black in the midst of a “car crash” of a market. He emphasised how the firm was still in profit and was budgeting to make sure it could make a narrow profit into this year.
Savills plans to survive the mortgage downturn thanks to its cash reserves, lead generation from its estate agencies and support from Savills’ pensions, insurance and wealth management arms. But smaller brokers are unlikely to have the funds to prop up their businesses.
John Charcol senior technical manager Ray Boulger says: “Big brokers can cut back but smaller firms will have lower overheads and one-man bands just will not be in a position to cut back.”
Rising regulatory costs are also adding to problems for brokers.
However, there are survival strategies which include making the customer base contact systems more efficient, selling other products and even retraining.
Sesame managing director of mortgages and general insurance John Cupis says providing holistic advice to clients on more than just mortgages could help some firms. “If you look at the reasons why some mortgage brokers continue to be successful, it is because they have gone back to traditional all-round selling of mortgages and also protection and general insurance.”
Boulger says: “These are the sorts of sales you really should be doing all the time but become less important when times are good. There is an opportunity for some brokers to boost their income.”
Making the most of the existing client book is crucial but it is clear that traditional levels of remortgage businesses are no longer attainable. Many clients coming to the end of their fixed deals now find their lender’s lower SVRs will do nicely.
A further factor that could put pressure on brokers looking to remortgaging is the FSA’s proposal to cap mortgage lending at three times income.
Boulger says: “If mortgages are limited to three times income, many borrowers who have borrowed more than that with a perfect credit rating would be denied the opportunity to remortgage or move house.”
For some advisers, the solution could be to become full-commission IFAs through retraining. “For advisers confident enough to upskill, this could be the answer,” says Cupis.
Boulger suggests that some smaller brokers might get through by expanding into areas beyond financial advice to stay afloat but he maintains: “There is still clearly a market for one-man bands and smaller firm.”
Mortgage lending nearly halved last year but expectations are now for an upswing in transaction volumes in the near future.
A recent survey of Intermediary Mortgage Lenders’ Association members suggests that 75 per cent of intermediary lenders think the securitisation and whole loan sale markets for prime mortgages will be back in action by 2011, with 73 per cent believing the UK economy will start to strengthen in 2010.