Make sure your remortgages deliver reassurance and revenue
James Watson (pictured) is sales director at Paymentshield
Where is your new business coming from?
Brokers have, in recent years, enjoyed a growing market share as intermediary distribution has increased from just over 60% of all mortgages in 2014 to around 80%, according to a report by IRESS at the end of last year. This shift in distribution away from direct business has helped to drive a healthy flow of new enquiries, but a faltering property market could indicate that tougher times are around the corner.
The latest figures from UK Finance show that first-time buyer mortgages in June were down by nearly 2% on the same month last year, homemover mortgages were down by more than 6% and the number of buy-to-let purchase mortgages was down by more than 19%.
This subdued activity is supported by RICS, which says that new buyer enquiries fell in May, continuing a decline since the start of the year. And, online property portal, Rightmove, has said agreed sales were down for the sixteenth successive month in May and that new buyer enquiries provided little reason to expect an uplift in sales volumes over the second half of the year. It added that the time to complete a property purchase has increased from around 16 weeks in 2017 to around 18 weeks this year.
This bleak outlook for the purchase environment is offset by a buoyant remortgage market. UK Finance says the value of remortgages was more than 13% higher this June than the same month last year and the August rate rise is likely to stimulate a rush of activity when borrowers on variable rates see the cost of their mortgage increasing.
As we move into the final quarter of the year, it is likely therefore that remortgage activity will continue to be the driving force behind your business, particularly if an environment of uncertainty ahead of the Brexit deadline next March continues to put the brakes on the purchase market.
So, how can you ensure that you are making the most of your remortgage business?
A remortgage is a good opportunity to review your client’s overall financial situation and protection requirements. They probably already have cover in place, but if this cover was arranged at the time they were purchasing the property, there’s a good chance it was arranged hastily as just one of many considerations as part of the transaction.
The remortgage process is less time sensitive than arranging a mortgage for a purchase and this provides opportunity to ensure a flight to quality in your client’s financial products. Rather than picking a one-size-fits-all general insurance product from the shelf, you can ensure that your clients have the right cover for their individual requirements. This means choosing a product that provides maximum protection for their building and belongings and working with a provider with whom you know your client will have a positive experience if they ever do need to make a claim. A positive claims experience with a provider that you have recommended will reflect well on your business and enhance your reputation with your client.
In addition, if your remortgage clients haven’t reviewed their general insurance cover since purchasing the property, there is a good chance that you cut the cost of their cover at the same time as making sure it is fit for purpose.
As well as providing your clients with reassurance, reviewing their general insurance as part of the remortgage process can also be rewarding for your business. A typical general insurance case takes around half an hour and the average commission is just over £80 each year. It is recurring revenue, so you will be paid every year the policy remains in place. This means that total earnings can quickly add up in year two and beyond.
So, assume that you arrange eight remortgages every month. If you were to review the general insurance cover for each of these remortgages and consequently made sales on 50% of your mortgage completions, you would make four general insurance submissions each month, which would deliver more than £4,400 in revenue in the first year.
Assuming you make the same number of general insurance sales the following year, even factoring in some client attrition, you could expect to earn more than £8,000 in year two and more than £11,000 in year three.
At Paymentshield, our policies remain in place for an average of five years, by which stage, if you were to maintain the same levels of sales, you could be earning nearly £16,500 in general insurance alone. At a time when purchase activity remains flat, this could provide valuable additional income.
Remortgage activity will be crucial for your business in the coming months, so make sure that you make the most of the opportunity to build closer relationships with your clients and ensure that they have the best general insurance for their requirements, not just the best mortgage.