In recent weeks a number of mid & even large sized mortgage brokers have gone bust. Chase de Vere Mortgages, Hamptons and Cobalt have all shut their doors and across the country many brokerages are struggling.
Decent mortgage brokers are a consumer good; with many thousands of mortgage products each with their own peccadilloes, most people need a professional to take them through such an important transaction (see the Mortgage Finding guide). Therefore this decline of the advisory industry is a worry.
Recently I was at the FSA consumer panel (see FSA panel blog), and when talking about mortgages at the brief informal lunch afterwards, one of the panel suggested the way to deal with it is by regulating to reduce the number of products available. I found this a strange view; the last thing we want is to reduce competition, the real problem right now is lack of available mortgages, not too many products.
The brokerage solution seems to me to be a much better answer. Of course, like any industry there are some bad pennies, and there’ve been scandals; but the incorporation of brokers under FSA regulation in recent years means that side of the industry is shrinking and on the whole they’re a pro-consumer factor.
Yet right now the brokerage sector is in big trouble; the good days are over and from what i hear its tough to survive. The main reasons for this seem pretty obvious.
- No Mortgage Supply. Brokers make their money from new mortgages and people switching deals. Yet the credit crunch means those deals simply aren’t out there. Plus, while previously you could get a mortgage if you were borrowing 100% of the home’s value, now that’s more likely to be 75%. Incorporate house price decline and that means the number of people who can get new deals has been severed.
- Competitive Standard Variable Rates. In the old days, the thought of jumping to SVRs once your fixed or discount deal ends was something to be warned against. Now, government pressure put on lenders that SVRs should follow declining base rates means for many the SVR is the most competitive deal. This of course slices down the customer churn rate, as more people are sticking on existing deals, meaning less new mortgage business is done.
- Direct Deals. This is the only area where someone could’ve done something. Lenders have been introducing more deals that brokers aren’t able to process. This is something I’ve discussed before, as in my view it has diminished consumers’ ability to easily compare cross market as the “whole of market” rules for mortgage brokers mean they can only advise on mortgages available to them. By launching non-broker deals, lenders have created a two tiered system. This was warned about by the venerable Ray Boulger of Charcol at the building society association annual conference a couple of years ago, and it seems his predictions have come true.
The real worry here for consumers and regulators isn’t for the right now (though of course for those who work in the brokerage industry its a real problem). It’s market conditions that are driving down the number of brokers as the deals to be done aren’t out there.
The problem is what happens once the market eventually picks up. There will be fewer brokers, and the qualifications needed don’t happen overnight. Plus, even those recently qualified don’t have the experience. Will those who are losing jobs now come back?