Brokers’ dominant market share is under threat from artificial intelligence (AI) and new FCA proposals to make it easier for borrowers to go direct, industry leaders warn.
Advisers have dominated the market for more than a decade and now account for nearly nine in 10 new sales, data from the Intermediary Mortgage Lenders Association shows.
However, industry leaders warn that brokers face a fight to hold onto their market share over the next decade unless they step up their game.
The warning was given at a roundtable on the future of the mortgage market, dubbed The Mortgage Market in 2035, organised by communications consultancy MRM.
Rob Jupp, Group Chief Executive Officer of the Brightstar Group, said the big banks are “getting ready to wage war” by investing millions in AI to claw back market share.
He added: “Now branches don’t really exist anymore, it’s made the whole virtual marketplace acceptable to customers, which is where AI can play a huge role. I do worry that some brokers make assumptions that every year enough deals will fall into their lap.
“They will need to offer real value to people for their commission and to change their proposition because AI will be better at taking on the simple tasks of securing people a good deal.”
The warning comes as the FCA consults on new rules that would make it easier for borrowers to transact on an execution-only basis directly with a lender.
The regulator wants to remove the “interaction trigger” introduced as part of the Mortgage Market Review (MMR), which meant firms had to provide full advice if there was an “interactive dialogue” with a borrower during a sale or contract variation.
In its recent consultation paper, CP25/11, the FCA admitted that removing this trigger could see some consumers “forgo intermediation and instead engage directly with lenders”.
While the regulator says it is uncertain how many borrowers will opt for the execution-only route, it has modelled for a 7.5% drop in broker sales.
That would see the number of cases handled by brokers each year fall by more than 97,000, costing them more than £116m in lost commission and fees.
Tanya Elmaz, Director of Intermediary Sales for specialist lender Together, warned that brokers need to “understand the headwind that’s coming” and “adapt”.
She added: “When I go to a mortgage advisor now, I want advice on retirement and my will and everything else, I want more than just a broker picking up the phone and saying my current deal is coming to an end.
“It's not even a very long conversation with regards to new information and not much of a value-add scenario that consumers need. People are also not necessarily just looking for the fixed rate, but in a more sophisticated space they are looking at variables, trackers and different types of mortgages.
“Younger people are also far more used to doing everything on their phone or on an app in just a few clicks, so brokers will have to watch their back with technology and adapt to supporting customers in different ways.
John Davison, Head of Product, Proposition & Distribution at lender Perenna, said that the days of “order taking” were numbered, particularly in relation to customer product transfers
He added: “We've seen some brokerage firms come to the market in the last few years where their advice process is not much more than order taking. The customer picks a product themselves online, and then the advisor affirms they’ve made the right choice. While advice may be offered, unless advisors fully assess customer needs, circumstances, and future plans, it can be easy to recommend a product that may not be suitable in the longer term because the customer is focused on cost rather than risk.
“I’m an advocate of customer choice and education, and whilst it is important to show customers what rates are available, the conversation should start with what they want, what their plans are, what their needs are, and what their circumstances are in order for an advisor to make a holistic recommendation. The true value of advice for a customer comes from understanding how the recommended product will support and enhance their plans – not just deliver the cheapest monthly payment.
“Technology and AI is catching up quickly in the product transfer process, where lenders are now able to reach out to customers directly, offer them a near instant process for accepting a rate available, and all without advice. Brokers will be left behind in this part of the market unless they are able to offer their customers more value than just a new product. The danger here is that customers accept the new, quick and easy process from their lender without receiving any advice – and this is where brokers have an opportunity to ensure they remain relevant in a world of digital automation.”
Davison was keen to stress the vital role that brokers play in the market, adding: “I think it's hugely important that we don't underestimate the role advisers play in financial education in this country. Helping people understand complex issues like income tax and credit scoring, as part of a wider financial education conversation on their changing circumstances as they go through life, is really important. The brokers who use AI and technology as part of the ongoing holistic advice process will thrive in this new future. Those who look to use it to just remove humans from the advice process may find they end up left behind.”
