Research from Legal & General Mortgage Club and the Association of Mortgage Intermediaries (AMI), shows that the need for mortgage brokers to actively target borrowers who are not being serviced by high-street lenders.
The research of 2113 current borrowers, conducted by YouGov, reveals that while 81% of borrowers would prefer rather make one attempt at securing a mortgage than trawl the high-street, only 44% actually plan on visiting a broker during their next attempt to secure a mortgage.
3.4m (1 in 3) of the 11.3m mortgage holders in the UK plan on securing a new mortgage over the next twelve months. 1.3m borrowers plan on securing finance to fund a new house purchase while the majority (1.6m) will be looking to refinance their current deal.
However, borrowers are anxious about the mortgage choices available to them, with only 1 in 3 of all borrowers very confident that they could get a new loan if they applied for one. 1.1m borrowers (1 in 10) are worried their credit record may be an issue. While 2.8m (1 in 4) feel their income level is too low and 2.3m (1 in 5) believe they don’t have enough deposit.
Ben Thompson, managing director of L&G Mortgage Club, said: “Many borrowers don’t realise that chasing the headline rates that high-street lenders advertise may lead them to making multiple attempts at securing a mortgage. At present, more than half of all borrowers say they would apply for a mortgage directly with a high street lender with the majority doing so purely because they have an existing relationship with one rather than because they knew they offered the most appropriate deals. It’s clear that borrowers would benefit from professional, impartial advice that will potentially open up a lot more financing options for them and brokers have a golden opportunity to tap into this part of the market.”
Analysis of the mortgage products available direct shows that many borrowers are likely to be disappointed by high-street lenders. 34% of borrowers have a deposit of 10% or under, yet only 17% of current best buy products are available to these borrowers. The 2.3m borrowers (21%) with deposits of 5% or less (See Table 1) have only 2% of the market to choose from. In addition, interest rates at these LTV levels are the highest in the marketplace, averaging well over 5% APR.
When eligibility criteria such as income multiples are considered the choice for borrowers across the entire market is even narrower. The average household income in the UK is a little over £31,000 and the average target property purchase value is nearly £228,000, so for those with a 25% deposit, only a third of the products available on the high-street would be appropriate. And for those with deposits of 15% or less, household income would have to be much higher than the UK average in order to secure a deal on the high-street at all. (See Table 2)
Robert Sinclair, director of the Association of Mortgage Intermediaries, said: “There is a discernible gulf between the needs of many borrowers and the reality of what is being offered by high-street lenders. Such is the dearth in appropriate products that more people need better advice and a wider choice and this represents a vast pool of potential business for brokers.
“Brokers need to educate the consumer and be more proactive if they are to turn this latent demand into new business. The mortgage market isn’t suddenly going to spring back to pre-down turn levels so it’s up to brokers to make the most of the opportunities out there.”
Table 1: Borrowers’ Deposit Levels vs. Mortgage Product Availability
| Deposit level | % of borrowers with maximum deposit at this level | % Best Buy products available** | Average interest rate** |
| 0% | 13% | 0 | n/a |
| 5% | 8% | 2% | 5.20% APR |
| 10% | 13% | 15% | 5.31% APR |
| 15% | 8% | 19% | 4.77% APR |
| 20% | 10% | 25% | 4.33% APR |
| 25% | 8% | 25% | 4.48% APR |
| 40% | 8% | 2% | 2.4% APR |
| Total below 25% | 60% |
** Moneyfacts Best Buy Tables – 47 products – 25.5.11
Table 2: Product Availability Using Average Household Income and Average Target Property Value (£31,036 and £227,895)
| Deposit level | % of borrowers with maximum deposit at this level | No. of mortgages available*** |
| 0% | 13% | 0 |
| 5-15% | 29% | 0 |
| 20-30% | 25% | 388 – 650 |
| 40% | 6% | 944 |
| 50%+ | 28% | 1300+ |
***Moneyfacts High-street mortgage availability 27.5.11
Table 3: Borrower Credit Record Issues
| Credit Issue | % Borrowers | No. Borrowers |
| Up to 2 defaults on unsecured (non mortgage) loans (up to 1k in total) – | 3% | 340,000 |
| One month’s mortgage arrears in the last 12 months | 2%
|
226,000 |
| CCJs of over £500 in the last 3 years | 2% | 226,000 |
| More than 2 defaults on unsecured (non mortgage) loans | 2% | 226,000 |
| An IVA to pay back debts | 2% | 226,000 |
| CCJ up to £500 in last 3 years | 1% | 113,000 |
| More than one month’s mortgage arrears in last 12 months | 1% | 113,000 |
Source : Legal and General
