The Intermediary – April 2025 - Flipbook - Page 8
RESIDENTIAL
Opinion
What a difference
a year makes
W
e are about to
start interviews
with lenders
large and
small as part
of the research
process we undertake each year
to produce our annual Mortgage
Efficiency Survey Report.
It’s a fascinating time, talking to
key people and really working to
understand the day-to-day. They know
what is keeping lenders up at night,
and by speaking to them year in, year
out, it’s amazing to see how priorities
ebb and flow over time.
It’s also an opportunity to
understand and articulate how these
priorities depend on the size and focus
of the lender, establishing where
there are trends emerging that cross
the market, and where risks and
opportunities are more nuanced.
Last year, we found widely differing
views between lenders on the impact
and implementation of the Consumer
Duty, artificial intelligence (AI), green
lending and cyber security.
Lenders continued to rely upon
broker distribution, with 91%
of applications sourced through
intermediaries – a very marginal
upli from last year’s figure of 90.9%.
There are good reasons to expect the
intermediary market share to remain
at this level into 2025 – the Consumer
Duty rules mean lenders can derisk
the advice from their propositions.
But how sustainable this is in the
longer-term is a moot point.
When we looked at average
conversion rates last year, lenders
were clear that the volatile interest
rate environment had impacted
their ability to convert. This issue
had real commercial impacts for
some, as brokers swapped products
post-application in the quest for the
best pricing. Some reflected that the
app-to-offer timescale must improve
to deter product swapping in a volatile
pricing environment.
8
The Intermediary | April 2025
This year looks to be lile different
– the Bank of England cut rates twice
last year and again in February.
Markets are pricing in further
reductions later in 2025. We are also
facing major tax changes in April
as the nearly one-year-old Labour
Government implements the majority
of its fiscal plans. That is going to
have an impact on affordability for
borrowers and employers, which are
likely to continue to adjust headcount
over the next 12 months.
Not all lender systems are equipped
to cope with pricing volatility and
the speed of repricing that entails.
We expect another year where
product and flow management are
challenging for many.
Shifting priorities
Last year, the average retention
rate of 62% in 2023 had improved
incrementally to 66%. High street
lenders led the way with an average
of 77%. Challengers and specialists
significantly rose from 36% last year
to 47% this year. For some newer
players, this reflected improvements
in processes over the last 12
months, and more generally, beer
strategies for coping with maturing
product cohorts.
Product transfers have dominated
the refinance side of the market, both
in residential and buy-to-let (BTL)
sectors, ever since rates started to
climb in December 2021. The rampant
inflation experienced through 2022
exacerbated borrower affordability
concerns, and made an internal
transfer the indisputable best option
for large numbers of those coming to
the end of their product terms.
The argument for remortgaging
over internal product transfers is
strengthening this year. It’s likely that
we will hear from some lenders at
least that retention strategies are a key
priority. The steep product rate cuts
seen in Q1 are testament to this already
playing out.
STEVE CARRUTHERS
is business development
manager at MSO Mortgages
Just a few years ago, the
‘environmental’ element of
environmental, social and governance
(ESG) sat at the heart of many lenders’
plans. Last year, we saw that impetus
slow. This year, we expect the green
agenda to ramp back up for lenders.
A series of regulatory and legislative
deadlines are now imminent. The
Government is currently consulting
on how to make energy performance
certificates fit for purpose.
Landlords in the private rented
sector (PRS) have very lile time
le to address insufficient energy
efficiency ratings in their portfolios.
We’ve already seen moves by lenders
to link pricing to Energy Performance
Certificates (EPCs) and adjust loan-toincome (LTI) ratios. That is likely to
continue this year.
Last year, there was total consensus
about the need for cyber security
and its impact on the larger lenders’
willingness to integrate and exchange
with third-party systems. The risk and
reward equation of external technical
infrastructure or data relationships
was, for many, at the heart of any
decision to move forward with
external partners.
The prospect of huge data leaks does
worry lenders, and sizeable provisions
are oen in place for such an event.
Where lenders were considering
making new data purchases – such
as Auto Income Verification – or
developing elements of Open
Banking functionality, it was through
established players.
We’re expecting lile to shi on
this front. Integration is increasingly
necessary, particularly where
competition is fierce.
The question is now how lenders
achieve it without exposing
themselves to security breaches. ●
