There’s a worrying trend in the mortgage market, that’s dangerous for brokers and consumers alike. Now over 50% of deals are ‘direct only’ meaning most mortgage brokers don’t access them – and often they’re the market leading offers.
This is something we’re in the process of doing some more work on, but I wanted to put down some very provisional thoughts here and canvas opinion.
What are direct deals?
In the old days most mortgage deals were available through intermediaries (brokers and IFAs), and ‘whole of market brokers’ would need to include all of them in their research before giving a recommendation (see the mortgage broker guide).
There were a few lenders who didn’t let brokers sell their deals, instead selling them direct to the public as ‘direct deals’, only via their branches or telephones channels.
Yet where once it was a few and they were either broker or direct, now MOST lenders have two types of deals, some offered direct, some through brokers and some both. And increasingly the better ones tend to be direct only.
What’s the problem?
The logical conclusion is less people will end up getting the advice, meaning more will be at the mercy of lenders’ spin and spiel on a very complex product.
The worry is heightened by lenders taking a leaf out of the credit card industry’s book, and beginning to impose hard-to-spot stealth fees and charges. The FSA or its successor needs to crack down on this cynical practice.
I’ve blogged before about the problems in the broker market (see mortgage brokers in trouble and even some mortgage brokers don’t know who their friends are) and while some things have improved, such as the mortgage and remortgage availability, the direct deal situation rapidly worsened.
While the money savvy will be fine (see the mortgage guide and remortgage guide for a briefing on how it all works), I regularly meet people who say: “I just want to know the best deal", and simply suggesting they go to a reputable broker often without paying a fee, has enabled that to be done (as there’s no one best buy mortgage, there are too many iterations).
Now that credit scoring has got tougher, so too has acceptability, even for those with suitable deposits. Here brokers offer an additional benefit; they’ll have a good idea of the other hidden criteria and can guide people through – stopping rejections which leads to unnecessary credit searches added to files.
So as mortgages have got more complex, people are pushed to get less advice and brokers are going bust. In many ways this is seeing lenders gradually killing off the advisory side.
This has only happened since brokers got better.
Brokers have only been regulated since 2004, and things weren’t always great before then. Yet the industry has pulled itself up, practices and advice seem to have got better.
Perhaps it’s no coincidence that once the broker market across the board started giving more fair advice, the lenders started trying to pull the plug?
We now have a farce of terminology
Brokers fall into two main regulated types (ignoring the issue of fees):
- Panel brokers. These will advise you only from a limited panel of lenders.
- Whole of market brokers. These supposedly look across the ‘whole of the market’ to find you the best deal.
Yet even when the regulation began that was never true, as there was a subset of ‘whole of market’ brokers – though they didn’t have to state their limitations:
- Whole of market (panel). When the Financial Services Authority started regulating brokers in 2004, it left a loophole allowing some to claim ‘whole of market’ status while offering only a small panel of lenders, providing they "check regularly" what the top deals are and then alter their panel accordingly. Here, it can call itself whole of market even though it’s looking at a panel, which does not represent the whole market – far from it.
Is it time to get rid of the now meaningless ‘whole of market’ term?
Even though the official term is ‘whole of market’ all it actually means is those brokers must search from the best deals AVAILABLE TO THEM, which means the now huge tranche of direct deals, and all the special deals offered to current account customers, aren’t included.
Some fee charging brokers have started to say they will include direct deals for a fixed fee, yet as far as I’m aware (do let me know if I’m wrong) the FSA has not defined the required breadth of search for this type of model and there’s no terminology for it – so what come back do you have? The FSA needs to relook at how the entire broker lender relationship is working before it gets too badly broken.
How does this affect the MSE stance?
Our current mortgage broker finding guide has always used the ‘broker plus model’ which says get a broker, then search for direct deals yourself. I’m loathed to change that too much as I think it’s the right balance between helping those who need it, and finding the ultimate perfect deal.
However, we are in the process of updating it and have done some work already, especially on expanding the ‘finding direct deals route’, and I’d welcome suggestions.
Any feedback on this from brokers and others is most welcome.