Insight & Research / Mortgages

Our Mortgage Efficiency Survey tracks the developments in the industry over the past 12 months, enabling lenders to benchmark their mortgage sales and originations systems and processes against the mortgage market as a whole, their peers and the sector they operate in across a variety of key performance indicators. 

This, our sixth year of survey, analyses the responses of 21 lenders, with a combined share of gross mortgage lending of 52% in 2017, equating to £129bn of loans. 

Henry Woodcock Principal Mortgage Consultant IRESS UK

Findings at a glance

Over the last year, the mortgage market has again faced economic, social and political uncertainty and regulatory change. In this report we look at how the market has adjusted and how it is likely to fare in the next twelve months.

 

Market overview:

 

  • The market expected the new regulatory and Bank of England restrictions to cause a significant decline in sales of buy-to-let mortgages, however sales only dipped by 3% from last year
  • The remortgage market has shown strong growth in the last 12 months, with an 11% year-on-year increase
  • The number of offers made in ten days or less has seen the sharpest year-on-year increase of just over 12%, with nearly a third (30.8%) made
  • However the number of “instant” mortgage offers or offers made within five days or less remains low following the introduction of the mortgage market review 

 

The intermediary is still king:

  

  • Intermediary mortgage distribution remains the channel of choice for lenders. 80% of survey participants on average 
  • Last year, three quarters of lenders saw an increase in applications through intermediaries and the majority (75%) expect intermediary volumes to remain level this year

 

 

A more digital future?

  

  • Half of lenders (50%) in the survey offer, or are about to offer, a digital self-service proposition
  • Lenders are increasingly engaging with intermediaries and consumers through social media. Twitter and LinkedIn lead the way. Two fifths (39%) of lenders in the survey view engagement via social media as very important or vital
  • Lenders continue to invest in providing mortgage services on mobiles, with more than three quarters (80%) of lenders providing affordability calculations on mobiles and two thirds (66%) allowing consumers to obtain a decision in principle

 

Buyer types

 

Remortgage sales saw the strongest growth from 2016 with an 11% rise, probably due to the continuation of unprecedented low interest rates and fierce competition between lenders. First-time buyer purchases also saw an increase of 9%, although the Council of Mortgage Lenders is forecasting this growth will slow down if the economic outlook remains uncertain as lenders will shift away from higher loan-to-value lending, which would have a greater impact on first-time buyers than other mortgage sectors.

 

With the recent regulatory changes to buy-to-let, we had expected a significant year-on-year drop in that segment, but it remained almost level, with only a 3% fall compared with 2016. It will be interesting to see how this compares next year with mortgage tax relief reducing further and the Prudential Regulation Authority’s (PRA) new buy-to-let regulations in full effect. Some lenders are considering withdrawing from the portfolio landlord market due to the stricter underwriting rules within the PRA regulations.

 

There was a 2% drop in applicants moving home, continuing the downward trend seen last year. This is probably due to applicants being constrained by the stricter affordability rules introduced in 2014.

Distribution

 

Intermediary mortgage sales distribution continues to be the key route to market, with an 80% share. Two additional intermediary only lenders have joined the survey increasing the intermediary averages, but even so, the lowest individual lender percentage of sales via intermediaries is still 49%. The other three channels to market continue to decline, and dipped by between a quarter (26%) and almost two thirds (63%) compared to last year - people still prefer to receive human advice on one of the most important financial decisions of their lives.

Intermediary mortgage sales distribution continues to be the key route to market

Accept, refer and decline rates

 

Accept rates are broadly similar across the four sales channels, varying between 45% and 54%. The internet has the highest decline rate by some way at 30%, while telephony has the highest referral rate of 38%. Compared to 2016, acceptance rates have generally improved by a few percentage points, except telephony which saw a drop of over 11%. Referrals increased in the intermediary (16%) and telephony (15%) channels but dropped by 6% in the branch channel.

Telephony has the highest referral rate of 38%

UK_Chart_Banks_Mutuals_Accept_Refer_Rates_Channel.png

Reviewing the percentage of accepts and refers at decision in principle, there is a striking correlation between the average percentages of accepts and refers across all channels when comparing banks against mutual lenders. Banks accept a higher percentage of applications than mutuals, between 27% and 36% more depending on the channel. Whilst refers by mutual lenders are much higher than banks, by between 47% and 62% depending on the channel.

It is unlikely that differences between banks and mutual lenders is related purely to applicant risk profiles and the type of lending underwritten. Anecdotally the difference could indicate a reliance on manual underwriting in the case of mutual lenders and a higher use of automated credit decisioning and underwriting by banks. 

Banks accept a higher percentage of applications

Days to offer

 

The percentage of offers made in ten days or less has seen the sharpest year-on-year increase at 12%. The percentage of offers being made in 30 days or less also increased, but only by 4%. The number of instant and within five days  offers have dropped by over 45% year-on-year, and are also lower than in both 2015 and 2014. It appears that the rules introduced in the Mortgage Market Review continue to increase the number of days it takes most lenders to produce an offer. However, three lenders in the survey state that they produce all offers in 30 days or less.

The percentage of offers made in ten days or less has seen the sharpest year-on-year increase at 12%

Market dynamics

Mortgage Intermediaries

 

Distribution continues overwhelmingly through mortgage intermediaries. As in 2016, this year, the majority of lenders expect intermediary volumes of business to remain level (75%) with the number expecting intermediary volumes of business to increase, dropping from one in three (36%) to one in five (20%).

 

During the last twelve months, three quarters of lenders (75%) saw an increase in applications through intermediaries, up from 64% last year.

 

 

Digital self-service

 

Although the majority of people want to speak to a human adviser about this key financial decision, lenders are investing heavily in their digital offerings to improve the process. Remortgage activity in the mortgage market has continued to grow and 50% of the lenders in the survey offer or plan to offer a digital self-service proposition.

50% of the lenders in the survey offer or plan to offer a digital self-service proposition.

Social media engagement

More lenders are using social media to engage with intermediaries and consumers and through more social channels.

There has been a significant increase in active Twitter and LinkedIn engagements compared to 2016. Twitter has seen a 10 percentage point increase in active lenders, a 41 percentage point increase in intermediary engagement and a 28 percentage point increase in consumer engagement.

 

LinkedIn and Facebook have seen an increase in engagement with consumers of 17 and 20 percentage points respectively. YouTube and Instagram are also beginning to see traction in the mortgage market.

When asked: ‘How important to you is social media as a customer engagement tool?’ 39% of lenders said it was very important or vital and 61% somewhat important


Mobile services provided

Three quarters of survey respondents answered questions on the mobile mortgage services they provide. Lenders continue to make significant investment in the mobile services they offer consumers irrespective of the channel they end up applying through. In each of the seven services from research to case tracking there have been significant increases in provision ranging between nine and 42 percentage points compared to 2016. 

 

Lenders continue to make significant investment in the mobile services they offer consumers

Conclusion

 

Regulatory change still impacting the market

Given the economic, social and changing political landscape over the last twelve months, the mortgage market has shown itself to be robust, adaptive and forward looking.

New entrants and challenger banks are still coming to market and developments in technology such as ‘robo-advice’, digital brokers, the open banking initiative and API (application programming interface) platform developments all point to a vibrant market looking to increase efficiency, speed of approvals and lower the number of days to offer, making the application process smoother and ‘customer centric’.

This year’s survey highlights that lenders have made a significant investment in the mobile services they offer to the end consumer, providing research, quotation, affordability and case tracking tools irrespective of what channel they end up applying though.

However, we’re continuing to see the repercussions of regulatory change, with the percentage of mortgage offers produced within five days continuing to fall following the Mortgage Market Review, from 25% in 2012, to 5% now; and the full impact of changes to buy-to-let rules are still to play out.

 

Looking forward 

The market is predicted to grow modestly in 2018, much will depend on the ongoing EU negotiations, which may impact consumer confidence and sentiment and whether the Bank of England decides to raise interest rates. However what is set to grow, is the continuing and significant investment by lenders in digital offerings to consumers. Equally we’ll also see an increase in the digital upgrading of the house buying journey through the removal of manual processes and connectivity to associated services such as real-time affordability checking and conveyancing. 

But let’s not forget the continuing strength of the intermediary as a channel; three quarters of lenders saw an increase in applications through intermediaries. It suggests consumers still prefer to receive human advice on the most important financial decision of their lives. Even digital or so called ‘robo-advisors’ still have a human element in the process, whilst technology does the heavy lifting.

As competition between lenders continues to increase, investment to simplify and reduce friction in the mortgage buying process is a given. The challenge will be in joining up all the elements and third parties in the mortgage ecosystem to provide a transparent and seamless end to end process across all channels to market.

 

Participants

21 lenders with a combined gross lending of circa £129bn, and a market share of over 52% participated in the 2017 survey. They represent a cross section of the mortgage market from specialist lenders, regional building societies, new entrants and high street names.

Atom Bank; Bank of Ireland Mortgages UK; Birmingham Midshires; Cambridge Building Society; Clydesdale Bank PLC; Coventry Building Society; Family Building Society; Hinckley & Rugby Building Society; Leeds Building Society; Leek United Building Society; Lloyds Banking Group; Market Harborough Building Society; Newcastle Building Society; One Savings Bank; Principality Building Society; Royal Bank of Scotland Group; Santander; Tesco Bank; Vida Homeloans; West Brom; Yorkshire Building Society

Methodology - In general, an average figure has been used to illustrate patterns across the mortgage market and lender types. IRESS has taken all reasonable care to provide clear and accurate statistics based on the data provided by each participant. Please note that the data provided by the participants has not been independently verified. We have made a small change to the methodology in analysing this year's survey and within some questions have replaced null values with zeros instead of excluding them as non-responses. Minor adjustments have been made to last year's data for the sake of consistency. While this report has been prepared in good faith, no representation or warranty, express or implied, is or will be made and no responsibility or liability is or will be accepted by IRESS or any member of IRESS’ group of companies or by any of their respective officers, employees or agents in relation to the accuracy or completeness of this review or the use that is made of this review by third parties. Lender market tier groups are based on the UK Finance ‘largest mortgage lenders by gross lending’ table (MM10) and individual lenders’ own published lending figures. The three tier groups are: Tier 1 lenders with more than 5% market share; Tier 2 lenders with more than 0.5% but less than 5% market share; and Tier 3 lenders with less than 0.5% market share.

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