How will today's mortgage sourcing systems evolve in the coming years? This question affects over 50 per cent of IFAs, since more than half use a mortgage sourcing system.
I assume that the other half are not involved in writing mortgage business. I say this because I believe it is impossible to offer a client the best mortgage advice without a technologically sound mortgage sourcing system at your fingertips.
There are three major sourcing systems for IFAs to choose from – Mortgage 2000, MBL and MortgageLink. Each lists every mortgage product available (more than 4,000) and all are updated daily by the companies that operate them. The systems are all relatively inexpensive, ranging from about £23 to £70 a month, but the real value lies in the sophisticated tools they offer IFAs to help them find the best mortgage deals for clients.
A fast and efficient mortgage sourcing system is not only essential but is also a great time-saver and persuasive sales aid. Crucially, if an IFA can demonstrate to a client that they have the ability to compare every product in the marketplace and find the best deal, clients are far less likely to feel the need to shop around.
A good mortgage sourcing system should handle all the compliance issues associated with providing mortgage advice. Most systems print out an automatic mortgage code compliant quote, reasons-why letter and terms of business.
However, to survive in this rapidly changing mortgage market, mortgage sourcing systems will need to evolve to provide IFAs (and their clients) with a more comprehensive service.
In the internet age, the electronic transmission of mortgage applications is the Holy Grail. Imagine being able to source the best deal for a client in minutes, complete the application and send it to the lender online. From there, the lender credit-scores the application and emails an offer to the IFA within three minutes. No valuation or references are required.
This is already taking place in the US and it is only a question of time before it happens this side of the pond. But it is not difficult to imagine how much extra mortgage business IFAs could write if they had access to a service which produced mortgage offers within three minutes.
Morgan Stanley predicts that 20 per cent of all mortgage business will be conducted online by 2005. As Bill Gates said: “The internet should be used as a weapon against your competitors because, if ignored, it will be used as a weapon against you.”
No longer can IFAs bury their heads in the sand. They need to use the sourcing software out there not only to improve their service (and match that of their competitors) but also to reduce their own overheads.
Currently, there are two initiatives driving the electronic transmission of mortgage applications. The first is Ifonline and the second is Mortgage 2000. I would suggest there is probably only room for up to three electronic platforms. Lenders will not want to back just one as it could make that platform too powerful. They generate income by charging the lender a fee for each online mortgage application completed via their platform.
However, these platforms will grow and diversify very quickly. By the end of this year, they will include personal loans, credit cards, savings accounts, travel insurance and conveyancing services, which all pay IFAs a fee for submitting applications online. In short, IFAs will be able to offer clients a more comprehensive and holistic service and make commission from areas where previously that was not possible.
What online mortgage innovations will be available to IFAs in the future?
The mortgage market has never been so competitive. Lenders' margins are at an all-time low. Some, such as Bradford & Bingley, are even stopping lending, opting instead to broke mortgage business.
As a result of thin margins, many lenders, such as HSBC and Cahoot, are moving to risk-based pricing, a trend I believe will continue to increase in popularity. The days where an A+ customer subsidises an Acustomer will be a thing of the past. The only problem with risk-based pricing is how does the IFA accurately compare lenders' mortgage products if the rates are specific to the risk of each individual client?
One way of overcoming this problem will be the advent of the online mortgage auction. This is where the IFA completes an online mortgage application on behalf of a client, which is submitted to a panel of lenders which then compete for mortgage business, in most instances taking a risk-based pricing view. The lenders then submit their bids within a set period and the IFA can select the most competitive offer on behalf of the client.
Online mortgage auctions are big business in the US, where companies completed almost £1bn-worth of mortgage business in 1999. I anticipate online mortgage auctions will be big business in the UK by the end of 2001. I expect the first intermediary mortgage auction will launch by the close of this year.
How much of IFAs' online mortgage business will be online by 2005?
Morgan Stanley predicts that 3 per cent of all mortgages will be transacted online in 2001, rising to 20 per cent by 2005. In the US, over 40 per cent of intermediary mortgages are online but only 5 per cent of intermediary to consumer mortgages are online. This indicates that the business-to-business model works better than the business to consumer when it comes to online mortgages. I predict that at least 30 per cent of intermediary mortgages will be online by 2005. If we say that intermediaries account for 50 per cent of the overall mortgage market, we can calculate that intermediaries will account for at least 15 per cent of the overall market.
How can IFAs grab a bigger slice of the online mortgage market?
At present, only 20 per cent of IFAs have a website and most of them are static, in that there is no e-commerce transacted on the site. But there are opportunities for IFAs to white-label mortgage sourcing tools and integrate them within their own website.
These sites should not cost more than £35 a month to rent. Clients can then log on to an IFA's website, source the best mortgage for themselves and apply online. For the first time, an IFA could go fishing or play golf and still make money from e-commerce. There are white-label sites available that allow comparison and e-commerce for loans, credit cards, sharedealing, deposit accounts, buildings and contents insurance, etc. Many of these products offer incremental revenue streams to the IFA. These no-advice-required products sell far better on the web than mortgages anyway.
The first step for an IFA is to get a white-labelled interactive site up and running. The second is to drive traffic to the site. The site should be marketed to existing client bases as an additional channel in which the client can do business with the IFA. The web address should be added to all company literature. The service can be marketed in Yellow Pages and in local newspapers.
The advantage that a broker advertising a website locally has over a London-based service such as netmortgage is that they can easily provide offline advice as they are local. IFAs who fail to offer their services online are sure to lose market share.