AMI: Product transfers will pose the greatest threat to brokers
Product transfers will pose a bigger risk to broker revenue than a decline in remortgages, the Association of Mortgage Intermediaries (AMI) has claimed in its Quarterly Economic Bulletin.
AMI forecasts that gross lending in the residential purchase and remortgage markets will be steady, at £270bn in 2019 and product transfers looks set to be more than £160bn this year.
AMI has predicted that gross lending on residential purchases and remortgages in 2020 will be £250bn whilst product transfers will see a big uptick, to £180bn.
The report read: “This will drive a potential reduction in proc fee income for intermediaries based on basic assumptions.
“In reality, the percentage of product transfers that remain advised is likely to be much lower in 2020 than this year, as lenders pour investment into developing direct remortgage platforms online that encourage borrowers down an execution-only product transfer route.
“The challenge for brokers in 2020 will be how they take a greater share of the product transfer market.
“Even if they succeed, revenue will be reduced significantly, which should be a catalyst for intermediary firms to consider integrations with lenders directly to facilitate product transfer business and a further push to raise protection sales penetration.
“We estimate that around 50% of fixed rates are now taken over five years. A much bigger risk to brokers’ volumes is product transfer business.”
The report found that the remortgage market remains resilient, even considering the shift towards favouring 5-year fixed rates and Help to Buy is likely to further support this market in 2020.
The AMI said that it now looks likely that the base rate will be cut in the next 12 months.
The trade body has welcomed the current government policy to extend permitted development rights saying it necessary for improving the supply of new residential units to the market.
It said where these homes are developed raises questions relating to resale and secondary market valuations that should be considered by both lender and borrower.
AMI believes that sourcing systems and new technology developed to use algorithms to recommend regulated products need to be reviewed to ensure the veracity of outputs.
AMI considers all system manufacturers should be able to demonstrate their approach to and results of their due diligence.
The report read: “Compliance functions within intermediaries will need to consider what they need to see to satisfy their requirements.
“Disclaimers and disclosure is not necessarily going to be a long-term substitute for system reviews.
“The regulator needs to be sure it does not overlook the potential for poor customer outcomes as more disruptors come to market using new technology which might not have been produced by firms fully cognisant of the complexities of the mortgage market and its products.
“This is particularly so because of the timing of passing interest, fees and other terms.
“This is not about stopping innovation, it’s about making sure it is done responsibly.”