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Viewing report
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Direct Mortgages Market Assessment 2001
Key Note Publications Ltd, Jan 2001
The UK mortgage market is becoming increasingly competitive. In theory, this should be good news for borrowers, because prices are being forced down and products that meet their needs are being developed fast.
A key aspect of this competition is the drive to cut out intermediaries who broker approximately half of all new mortgages, and to sell direct mortgages, at a reduced price, either over the counter, or by telephone, or through the Internet.
The Government is taking a hand in regulating the mortgage market, in the light of the mis-selling of endowment mortgages, the spate of repossessions in the early 1990s, and the rapid escalation of house prices that leads people to overstretch their finances in order to get on the housing ladder.
The regulation proposed, however, may distort the market because it does not regulate intermediaries, and assumes customers can be educated to understand all the complexities and dangers of the mortgage market. It is likely to raise costs, and reduce personal contact.
Within the span of 5 years, the `direct' mortgage provider, using new methods and stripped-down, innovative products, has become the model for almost all providers, who have created multiple channels so as to capture whatever market share they can, or to preserve the share they already have. Ironically, because so many providers have telephone services or Internet mortgage services, very few have enough business to justify them economically.
Telephone sales of mortgages have risen much faster than other channels, but Internet sales have been disappointing so far, despite the optimism of the electronic banks. The rediscovery of the branch, neglected in the search for cost-effective service delivery, has led to a change in attitude among lenders. The balance of power appears to be shifting back to lenders who are increasingly becoming intermediaries themselves and selling the products of other lenders.
Direct sellers of mortgages are increasingly looking to outsource their basic operations to service companies that provide the same service, cost-effectively, to a number of providers. Within the next 5 years the concept of a `direct' mortgage provider, as opposed to a traditional lender, will have disappeared.
Key Note's survey of 1,055 adults, conducted in September 2001, confirms a stubborn preference for face-to-face delivery of mortgage products, and suggests that the Internet may have a use mainly to assist in choosing which product to seek. Even telephone sales, offered by almost all providers, are not particularly welcomed.
Despite the uncertain times, with a recession looming and a threat of falling house prices, there seems no economic reason to believe that there will be a lessening of demand for mortgages within the near future, given the shortage of land where people want to live, and demographic changes to family structure.
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