The mortgage market in the UK is dominated by the intermediary channel, with around 4 in 5 mortgage applications being submitted to lenders via professionally qualified mortgage brokers. Julian Wells, Director and Financial Services & FinTech Lead, reflects on some recent insight from McKinsey.

I recently read an interesting article from McKinsey & Company on the value of mortgage brokers. It described the importance of brokers to lenders, and highlights that the UK is a global leader in terms of its intermediary channel in the mortgage market. Much of what is written will come as no surprise at all to my contacts in the mortgage market, but it’s interesting (and encouraging) to see this framed so positively within a global perspective.

At the end of 2022, the Intermediary Lenders Association (IMLA), claimed that by 2024 as much 90% of the market to be accounted for by broker introduced business. It’s an interesting trend, especially when you consider that the number of brokers in the market has drastically reduced since before the global financial crisis, when they numbered more than 5 x the current population of around 5600 companies. Additionally, many industry experts anticipate that brokers will see a reduced market share by the time we reach 2030, due to the advances being made by technology and data making it increasingly popular for consumers to apply direct to lenders.

But the role and value of brokers remain strong, and McKinsey’s article highlights the importance of offering consumers value and choice, but also noting why lenders need to provide brokers with clarity and certainty, whilst treating them as customers.

Here’s a summary of what McKinsey concluded:

On the value of choice and advice:

“In markets with long-established broker models, such as Australia and the United Kingdom, brokers have continued to increase their share of origination. Increases in broker-originated mortgages have also been documented in France, Germany, Canada, and New Zealand, while numbers in the Netherlands have remained steady. The compelling customer proposition and the difficulty banks have in replicating the independence and choice offered by brokers mean that the broker model is likely here to stay.”

On the importance of clarity and certainty in criteria and underwriting:

“Banks with clearly defined credit policies are likely to gain preference from brokers for specific target customer segments.”

On the need to consider brokers as customers:

“When it comes to brokers, banks should devote their efforts to defining a “broker experience,” just as they’ve done for the customer experience. By collaborating with brokers to cocreate and actively listening to their feedback, banks can establish a reputation for providing an exceptional broker experience that will attract more brokers to their institution.”

The McKinsey article expands on this final point, outlining that a great broker experience includes the following:

  • Efficiency in digital processes – this includes compatibility with aggregators’ portals, swift turnaround times, high-quality credit assessments, policy consistency, and timely communication of progress supported by digital tools such as online document management and digital signature.
  • Specialised support – banks can create teams to work exclusively with brokers with tiered service levels depending on broker status. Top-tier support can include helping to “workshop” customers’ special cases.
  • Tools to lower brokers’ costs – banks can invest in technology that they can share with brokers (such as a CRM system) and help them reduce their costs. Other ideas include paying commissions promptly, which will help brokers to better forecast and manage their cash flow. Prompt and accurate payment is often better than paying a higher commission.

It’s approaching 25 years since I first worked in the intermediary mortgage market and it’s certainly changed a lot since that time, but I know from Whitecap Consulting‘s ongoing work in the mortgage market that the underlying principles outlined in this post and the article would have been as true back then as they are today.

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Established in 2012, Whitecap Consulting is a regional strategy consultancy headquartered in Leeds, with offices in Manchester, Milton Keynes, Birmingham, Bristol and Newcastle. We typically work with boards, executives and investors of predominantly mid-sized organisations with a turnover of c£10m-£300m, helping clients analyse, develop and implement growth strategies. Also, we work with clients across a range of sectors including Financial Services, Technology, FinTech, Outsourcing, Consumer and Retail, Property, Healthcare, Higher Education, Manufacturing, Logistics and Professional Services, including Corporate Finance and PE.