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Industry in depth
Maximising sales
9 December 2006
Nat Daniels looks at the ways in which brokers can maximise their sales and business potential
There are two ways to increase profits – increase sales or reduce costs. Increasing income means increasing sales and to increase sales you must have the right product coupled with access to the product delivery methods that your customers want to access. That often means using the internet.
Lenders recognise this to be the case and a large part of the increase in online customer mortgage applications is in direct business to lenders. Most have invested heavily in systems to enable instant mortgage offers and some are already looking beyond this at creating technology that will produce quicker mortgage completions. They are responsible for driving technology forward in our industry as they realise that it will improve their profitability by reducing their costs. But are mortgage brokers keeping up with the changes in customer demand and delivery?
Threats
Most brokers now use the internet to source and place business, but that’s probably because some lenders will not accept paper-based applications. But how many use technology to increase business levels?
Some may have basic websites providing information on products and rates plus the facility to complete an enquiry form, but rarely more than this. Many smaller brokers still rely more on word of mouth to generate new business. Such firms will not be around for much longer as more and more customers revert to the internet as a virtual shopping centre for all their needs as a consumer.
The belief among brokers is that most customers need advice to arrange a suitable mortgage and that these websites are only used by customers for information gathering. But how many consumers understand terminology such as early repayment charges, arrangement fees and tracker rates?
This may be the reason why many smaller brokers don’t see the internet as a big threat to their business. Also, brokers tend to be involved in the whole process of an application from explaining how the house buying process operates to liasing with solicitors to ensure satisfactory completion.
The greatest threat posed by websites to brokers is on remortgage business. It is now so much easier for a customer to compare what mortgage arrangement they have in place against what is being offered in the wider market. They also have the knowledge gained from previous mortgage transactions. There is also the added competition from lenders that have targeted this sector as a means to better business retention. Unfortunately, with the constant churning in the marketplace, remortgaging is how many brokers make their money these days. That, or dealing with non-conforming cases. However, even here, intermediaries’ expertise is being challenged by the arrival of new entrants and innovation. Increasingly, the non-conforming sector is on the online radar for the major players, with Merrill Lynch backing Mortgages plc and Advantage now owned by Morgan Stanley to name just two. These firms are not here to mess around and will only deal with brokers on their terms. If you do a lot of non-conforming business, and want to continue in that sector, then get savvy with the internet superhighway – and fast.
Effects going forward
Assuming more mortgages will be applied for online going forward, this could well affect distribution models. Networks are acknowledging that online business is growing and some now offer internet-based mortgage leads free or at subsidised prices to their intermediary members. Some also offer support and services to allow websites to be launched.
Brokers who want to increase their online presence will also need to assess compliance control of internet-based sales. Examples of areas that may need to be addressed are the promotion rules, rules relating to information-only sales and aspects of ‘Treating Customers Fairly’. But don’t let that put you off. The internet is a vital tool for brokers who want to maximise sales through new leads. Lead generation firms are becoming increasingly innovative and selective about the leads they offer intermediaries. One such development is online bidding for mortgage leads. However, one drawback with this approach is that it forces advisers to use their work time to bid when they should be spending it with their clients.
Nevertheless, it is an illustration of the way the market is moving, with the internet at the hub of generating or retaining business. In the past it may have been difficult to get hold of the prospects provided by lead generation firms. Traditionally, the problem has been that if immediate contact is not made with the client, the leads get progressively cooler as time elapses. But the advent of the internet now means that leads can be followed up almost immediately and it is important that this is carried out.
Lead generation firms also offer a route to new consumers that might otherwise be unreachable – especially following the ban on cold-calling to individuals. And for the younger broker keen to do business, but without the benefit of a long-established client base, they can prove a godsend.
The more youthful broker also tends to be more internet-savvy and understands the service that online lead generators offer. But even well established firms and individuals can benefit from the power of the internet as a lead generation tool.
Utilising the power
Recent developments in this market, especially with regards utilising the power of the web, makes it easy for all intermediaries to develop and grow their business. So if you are a broker and you haven’t got a website presence – get one. The future of your business depends on it.
A good first step would be to establish a company website and gradually evolve this to offer a facility for customers to apply online and ultimately conduct as much of the process as possible electronically. As with all businesses, lead generation firms can not afford the luxury of standing still and these firms are constantly looking at innovative ways to provide their services to brokers in a way that provides fresh, qualified leads the intermediary can work with.
Good quality lead generation firms can outperform other ways of generating new business because the intermediary is being presented with clients that have already indicated that they are wanting to be to contacted and are receptive about the products you are attempting to sell. These aren’t just random people. They have specifically requested information on your range of products. But some brokers are missing the chance to cash in. Some appear happy to sit on leads until they have gone cold before making the initial follow-up call, vastly reducing the chances of closing down the lead and generating some revenue for themselves.
What is certain is that online lead generation firms seem set to play a bigger role within mortgage advice as competition for business increases between mortgage brokers.
The trouble with some mortgage brokers when it comes to maximising sales is that too many are happy in their own comfort zone, which is arranging mortgages and dealing with affiliation agencies and perhaps selling a bit of life cover. But brokers that focus only on mortgage products and ignore associated product sales are losing out on a large chunk of business. Take general insurance (GI), for instance. As well as buildings and contents insurance it is essential you talk to clients about mortgage payment protection. Income protection has taken a bit of a hammering generally of late, but MPPI is a cover the government is eager to push to the public.
Mortgage ntermediaries that choose to operate in this market can access a range of products from a number of providers. Online quote engines are readily available so you can assess the most appropriate cover for your client. Indeed, it is possible to outsource the process to a GI wholesaler and earn an introducer fee.
Remember it is not the mortgage loan that needs protection – it is the people that take out the loan and that’s the case even in buy-to-let. Anyone with a spouse, children and business interests needs to be thinking about critical illness, term and key man insurance. All you need is the inclination to advise on them and open up a new revenue stream to increase sales and ultimately help your business become more profitable.
Nat Daniels is managing director of Mortgage Angels
Sales
Paul Marland, AGM, Intermediary Sales, West Brom for Intermediaries
2007 looks set to be a more challenging year for mortgage intermediaries. Although the mortgage market is continuing to grow, the rate of growth is expected to slow next year as the November interest rate rise and a possible further rate rise in February or March, take affect.
What’s more, the level of remortgaging is falling, as lenders retention policies start to bite. Statistics published by the CML recently show that remortgaging has already fallen from more than 50% of all lending, to approximately 30%.
Brokers cannot rely, therefore, on organic growth of the mortgage market feeding through into increased levels of business for themselves. If they do, they will at best only get the same results in 2007 as they have done this year. In reality, business levels and profitability may fall.
However, these sobering thoughts should not cause intermediaries undue alarm, as long as they are willing to do a bit of planning and put some sensible sales strategies in place.
An obvious starting point is existing clients. Brokers need to ensure they have the necessary permissions in place to contact their clients in the future in order to review their financial circumstances and recommend products and services when it is appropriate to do so. Most importantly, brokers need to be able to access client data in such a way that it can be used for marketing purposes. For example, borrowers on fixed rate mortgage deals should have review meetings diarised at least 3 months before their deal comes to an end. Brokers should also ensure they have a picture of their clients financial circumstances, which enables them to identify where sales opportunities exist. For example, brokers should know if historical mortgage clients have life policies, income protection, buildings and contents cover and pensions in place.
Another obvious issue is for brokers to ensure they are able to capitalise on every sales opportunity which presents itself. For example, when arranging a mortgage, do brokers also take the opportunity to appoint a conveyancer (and earn commission) on behalf of their clients? Every mortgage requires a conveyancer and if the lender is not providing this service free of charge, it should be an easy sell.
Likewise, brokers should anticipate new services coming on stream, such as HIPs in June next year, which provide an additional income earning opportunity. Every house seller will need a HIP and mortgage intermediaries are well placed to sell HIPs to their clients and earn additional fee income.
The truth is that brokers don’t need to increase the number of new clients they deal with each year, if they can increase their product sales to existing clients. The good news is that existing clients are quicker, easier and cheaper to sell to than prospecting for new business. However, that doesn’t mean that new clients can be ignored completely! Every business needs new business but, again, brokers can look to existing clients as a source of new business referrals. There is no more powerful testimonial than one delivered by a happy client. Brokers should therefore consider developing ‘client-get-client’ incentive schemes.
Perhaps the Christmas break should include a hour or two of sales planning for 2007?
Maximising sales
By Anna Bennett, Head of Marketing, InterBay
Wouldn’t it be great if you could double the amount of business you got from a client? A kind of “buy one, get one free” scenario. Well, it’s not as crazy as it sounds. If you’re supporting your client with their residential mortgage – why not offer them help with any commercial mortgage needs they may have?
Try self-cert commercial
It used to be said that “England was a nation of shopkeepers”, nowadays we call them entrepreneurs. With programmes such as Dragons Den and Risking it all, it’s not surprising that more people are tempted to leave the 9-to-5 in order to start their own business. With an already healthy amount of small business owners in the UK, plus a recent influx of start-ups, the need for business finance is increasing. It has also been reported that the percentage of small business mortgages being arranged by intermediaries is on an upward trend.
When InterBay assessed the UK market last year, it recognised the huge potential for supplying small business mortgages from £50,000 to £600,000. InterBay supplies these mortgages via intermediaries to business owners who need to self-certify their income. And it’s a market that a residential mortgage broker will find easy to branch into; they already know the clients, the loans aren’t too big or complex, and it can be an extremely lucrative income stream.
Making the switch
Most of the brokers who register with InterBay don’t have much experience with commercial mortgages. But given good support from the lender, it’s easy to get started. A few enjoy the business and its rewards so much that they make a complete switch from residential to commercial. The majority, however, add commercial mortgages to their list of services and find that it compliments their business perfectly – as well as adding a new and lucrative income stream.
So what do you need to do to get started? First of all, if you get a commercial enquiry from a client and you’re not sure how to proceed, ask your lender for help. Many brokers perceive commercial to be complex and time consuming – this needn’t be the case. With good support from your lender you can expect the case to complete in a similar timescale to residential and they’ll guide you through the requirements.
As for generating leads, there are many things you can do. The best place to start is with your own client database. You may have many small business owners or investors who just didn’t know that you could help them with their commercial mortgage needs.
Maximising sales
Providing your existing clients with a new mortgage service will definitely increase your business. Many borrowers who need to self-certify on their commercial mortgage application may have found it difficult to raise a loan from the high street banks (who typically need full business accounts). By offering to help them source a commercial mortgage, you’ll step in to help them when it’s most needed, exceeding their expectations. And we all know that the clients whose expectations are exceeded are more likely to recommend you to their friends and business contacts – thereby increasing your sales even further.
Sales
John Maclean, Managing Director, Link Lending Limited
Recent technological developments in the mortgage market have been largely driven by the desire to offer customers an instant and binding decision to lend them the funds they need. If a broker can do this, then the customer has little opportunity to walk away and take his/her business elsewhere. Mortgage brokers who have learned this lesson should also think about taking the principle a step further by striving to find a deal for every customer’s needs, as quickly as possible, so that no case is binned on the grounds that there is no product that fits.
Thinking “bridging” could often help to save those potentially lost deals, as the right bridging loan offers a fast solution for the provision of short term funds until longer term funding can be put in place – giving the broker and customer valuable breathing space to devise the more permanent solution. In finding such a solution for their client’s problem, the broker not only earns a fee for introducing the bridging loan, they also earn a procuration fee for putting in place the long term mortgage. They also earn the admiration, gratitude and trust of the client with, hopefully, repeat business and referrals in the future.
Here are some examples of the sort of problem-solving bridging deals that we are writing. The classic use of bridging finance is in allowing a borrower to purchase their new property when their chain has failed. However, it is still not widely recognised that a bridging loan can provide 100% of the purchase price, by lending up to (say) 85% LTV secured by a first charge on the new property and making up the 15% with a second charge on the old property.
Another fast-growing trend is for buy to let and private property investors to routinely use bridging finance to purchase their next property - especially if it is bought at auction or at a lower-than-average price because of being in a poor condition. Once renovations have been effected, the borrower then remortgages to a long term deal. Bridging can also be used to buy development land that only has outline planning permission and to raise short term capital on land and/or buildings.
The use of bridging finance as a mainstream solution – rather than only when the client is desperate – is sensible if there are genuine financial benefits for the customer. This means that brokers must know enough about the bridging loan rates and charges to enable the customer to weigh up the options. For example, if the bridging lender charges an exit fee (which we do not) then the broker needs to compare the exits cost with a comparable mortgage that carries ERCs. If there is no exit fee for the bridging loan, it will normally be much better value than a comparable long term loan that is redeemed after only a few months. Transparent pricing for risk (for example our 0.75% monthly interest rate at LTVs of 35% and less) will also help brokers to use bridging finance to the advantage of their clients.