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100 days since M-day – one in two brokers see a decrease in profitability

Amanda Jarvis

February 7, 2005

• Almost half of all brokers (45%) agree that the mortgage process now takes longer than two hours to complete
• One in eight (15%) appointed representatives could be considering a switch to becoming directly authorised

Brokers believe that regulation has brought a decrease in their profits, an overly long sales process and an increase in time spent on maintaining the same business levels pre-regulation. These are the findings from an Alliance & Leicester Mortgages broker survey* into the effect of M-Day on their lives as Tuesday 8 February 2005 marks the 100th day since mortgage regulation.

Decrease in profits

Brokers have found that regulation has decreased the profitability of their business since M-Day. Nearly one in two (44%) brokers state that the impact of regulation has decreased their profit levels.

Increased turnover needed to maintain business levels

Factors contributing to a slump in profits could stem from the fact that brokers are now spending more time trying to achieve the same business levels as before M-Day. The research reveals that almost half (47%) of all brokers are having to increase turnover in order to achieve the same level of profitability pre-regulation.

Sales process takes more than two hours longer

There are other factors hitting intermediaries’ pockets. Almost three quarters (71%) of the brokers questioned agreed that the mortgage sales process now takes longer, with just under half (45%) estimating that this takes over two hours longer when compared with pre-regulation.

Advice and KFIs

Surprisingly, nearly one in two (47%) brokers believe that the KFI provides no real benefit for the consumer. However, a quarter of brokers (25%) say KFIs are beneficial to their clients, whilst two percent say it’s too soon to tell. The majority of brokers (83%) reported that their clients were satisfied with the level of transparency regarding fees and commissions in KFIs.

Mehrdad Yousefi, Head of Intermediary Mortgages at Alliance & Leicester said: “Regulation has been a ‘mini-revolution’ in the mortgage industry. As the 100th day approaches it’s apparent from our research that some brokers are still adapting to life in a regulated environment. It is too early to make a conclusive judgement on the impact of regulation on brokers’ profitability and I think it will be interesting to revisit this issue towards the end of this year.

“It is evident that brokers are spending a lot of time and effort to ensure they are fully compliant with the new rules. It is also encouraging to see that brokers’ clients are happy with the clarity that the new KFI provides in helping them to understand all the costs involved when taking out a mortgage.”

Appointed representative or directly authorised?

The research shows that nine out of ten (90%) brokers who choose the directly authorised route felt they’d made the right decision, compared to only 54% of those who choose the appointed representative route.

The findings also reveal that one in eight (15%) of appointed representatives are considering a switch to becoming directly authorised.

While the appointed representative status may have been the preferred choice before regulation, the research shows that with hindsight it appears that perhaps the lure of being fully independent is greater for some. With nearly a quarter (23%) of appointed representatives saying they chose this option as it was easier to become registered, it now appears that they are considering the switch to a more independent status.

Mehrdad Yousefi continued: “Our research suggests that those brokers who opted for the directly authorised route are more satisfied with their choice than those who chose to be an appointed representative. This means we may see some brokers who originally chose the AR route changing status and becoming directly authorised. For those brokers considering changing their status, it is advisable to consider all their options and ensure that they can continue to meet all the regulatory requirements.”


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