In the report, Williams says: “Knowledge of the customer will become more important and as part of this there will be a move towards securing longer-term customer relationships.
“This has implications for how commission might be paid. It might also suggest that mortgage brokers will develop wider skills regarding investment products and move to become IFAs offering a full service and with wide expertise.
“Current conditions encourage that. This might then lead to payment of annual fees in which any mortgage service might be covered.”
Williams argues that if lenders want to access wholesale funding and sell mortgage books in the future, but at the same time minimise capital requirements, the quality and scope of advice offered to borrowers who take out their mortgages will be all-important.
He says: “The attraction of the IFA stance, with wider knowledge of the customer and the likelihood of a longer-term relationship with the lender through a cycle of different products, will become more important.”
Williams argues that as time goes on, lenders will need to know all they can about the borrower so as to understand the risk they hold on their mortgage books, otherwise they will be unable to sell on their books through whole loan sales or securitisation.
“For lenders, the issue of the quality of their mortgage book will become all the more pre-eminent. Investors will become much more critical of that, rating agencies are going to be much more critical of that and it is going to fall to the individual institutions who will also be much more critical.
“That link between advisers, lenders and investors will become more important, the flow-through where you originate what you know you can sell.”
Hometrack strategy risk and economics director Gary Styles says for that to happen, an holistic, IFA-style proposition will be crucial as a part of the mortgage origination and mortgage securitisation process.
He adds that lenders will need to know everything about the borrower’s entire financial situation.
Styles says: “The level of information which lenders will be expected to hold and to make decisions with has increased dramatically, and that will go even further. I would not under-estimate the extent of what you will require from lenders.”
Styles notes that only an holistic adviser process can meet these demands. He says: “This additional information is definitely required so that lenders really do understand the risks.”
Williams says lenders will require IFAs to manage the mortgage over the long term rather than see this as a transaction. His report says lenders are already targeting higher-quality clients to try to make their proposition as attractive as possible.
He refers to them as “super-prime” borrowers – low loan-to-value and with a high-quality credit history, they have instant access to the mortgage market and “lenders falling over themselves to lend to them”.
London & Country mortgage adviser David Hollingworth says this new borrower class will benefit intermediary distribution: “This new super-prime borrower will bring a lot of traction for lenders. However, these are the savvy borrowers who are well-used to an adviser and will not move away from that too rapidly.”
Hollingworth explains how lenders are already closely vetting advisers., saying: “The strangulation of mortgage lending has meant lenders have had to evaluate how they deal with intermediaries and a big part of that has begun to creep through in terms of diversity of broker base. Any adviser who wants to submit has to be targeted as one of the lender’s key partners.”
Do lenders think it is IFAs that will bring them these super-prime mortgage borrowers in the future? Will it be IFAs that become the “key partners”?
Finance and Technology Research Centre director Ian McKenna says IFAs are the only ones who can provide the “deeper relationship between consumers, lenders and advisers” that will be desirable in the future: “Mortgage brokers lack the skills, they are too focused on the short term and spend too much of their time cannibalising each others’ books. If brokers want to be a part of the mortgage world in the future they need to build new skill-sets.”
The BSA report paints a clear picture – in the future, mortgage advice and mortgage lending need to be based on transparency and to work alongside other, possibly, more profitable, financial products.
“Lenders will work with financial planners to work with customers for long-term loyalty,” says McKenna. “Right now, many IFAs are creating systems to meet RDR requirements and these will also be the systems necessary to meet the new skill-sets for mortgage advice.”