IRESS annual mortgage efficiency benchmark survey 2014

Transcription

1 IRESS annual mortgage efficiency benchmark survey 2014

2 Contents Foreword 3 Executive summary 4 Buyer types and distribution 6 Sales channels 9 Originations - pipeline effectiveness 10 Post-MMR expectations 12 Social media 13 Mobile technology 14 Conclusion 15 IRESS, the company: IRESS produce innovative, sophisticated solutions for mortgage, wealth management and financial markets participants. We are a global business with operations in Australia, New Zealand, Canada, South Africa, Asia, and the UK. Our products and solutions provide transformational business benefits and support a diverse range of roles across front, middle and back-office functions. Our solutions are tailored to suit the individual needs of our clients and we deliver services across all distribution channels and technology devices. In the mortgage sector our solutions include: IRESS Mortgage Sales & Originations (MSO) - an end-to-end, multi-channel mortgage solution for lenders. This solution is designed to improve the efficiency and service delivery of our lender clients - currently 25% of all UK mortgages are transacted through it.

3 3 Foreword This is our third annual review of the UK mortgage market and the first under the IRESS brand. Despite the tight Mortgage Market Review (MMR) deadline this year, I am delighted that 10 lenders, who represented over 66% of gross mortgage lending in 2013, ( 119bn of loans), have been able to participate in the 2014 survey. Our thanks go to these lenders. to compare themselves against their peer group as well as the market as a whole. This year s survey also provides trend analysis across the three years of the survey in key areas such as completions rates, cost of sale and days to offer. Simon Badley Managing Director IRESS The survey aims to provide insight into the quality and efficiency of the mortgage sales and origination process, from point-of-sale through to completion. It enables lenders We would like to thank all participants from the executives who agreed to join, to the practitioners on the ground who collated and entered the responses online. We know that gathering the data is not always a straightforward task but we hope the benefits and insights gained are worthwhile. Many participants provided commentary alongside their responses - all feedback was noted and much appreciated. Going forward, our intention is to make the survey easier to complete and we will change some elements to reflect the post-mmr landscape. We will be moving some of the intermediary questions to a new Intermediary Systems survey which will be commissioned by IRESS in September We are working with the Intermediary Mortgage Lenders Association (IMLA) and the Association of Mortgage Intermediaries (AMI) on the design of this new survey which will include a functional assessment of lender intermediary extranets and feedback from panels of intermediaries and lenders on what would enhance intermediated lending in the next two to three years. Henry Woodcock Principal Mortgage Consultant IRESS

4 4 Executive summary Key findings The IRESS survey covers 2013 and early This has been a difficult time for lenders as they have had to rise to the challenge of the MMR which came into force in April Lenders have responded by investing in systems, process and people and they continue to innovate in terms of products and services. Key findings of the 2014 survey include: The intermediary distribution channel remains a key route to market with more than half of mortgages introduced by intermediaries 51% for banks and 63% for mutuals Branch sales have dropped on average to less than one quarter 26% for banks and 18% for mutuals Just over 10% of mortgages were sold via the telephony channel 15% for banks and 14% for mutuals Online mortgage sales have dropped slightly to just under 5% The average levels of acceptance at decision in principle range between 53% in intermediary and consumer (the lowest), to 60% in telephony and 66% in branch (the highest) Cases progressing to offer are highest in the intermediary channel at nearly 70% compared to 64% in telephony, 67% in branch and 38% in consumer (internet) Offers progressing through to completion are highest in the intermediary and telephony channels at over 80%, branch a close third at 68%, but consumer only 46% There is a 66% difference between the lowest percentage and highest percentage of cases progressing to offer in 14 days or less, 9% lower than 2013 Trends Over the three years of the survey, perhaps not unexpectedly, the First Time Buyer and Equity Release buyer types have increased year on year, with Buy to Let appearing to reach a plateau between 2013/14. Across all lending, mortgages sold by intermediaries continue to account for over half of the market. While intermediary market share actually dropped by 6.8% in 2013 to just over 55%, it recovered slightly in 2014 to 56.3%. Branch sales per employee have increased by 17%, but telephony sales per employee have dropped 57% from 2013 and 43% from The number of offers and completions per employee has increased by 44%. The percentage of cases going to offer in 14 days or less has dropped to 42% from 56% in The intermediary distribution channel remains a key route to market with more than half of mortgages introduced by intermediaries.

5 5 Methodology and analysis Lender market tier groups are based on the Council of Mortgage Lenders (CML) largest mortgage lenders by gross lending table for 2013 (MM10) and where required individual lenders own published lending figures. The three tier groups are: Tier 1 lenders with more than 5% market share; Tier 2 lenders with more than 0.5% and less than 5% market share; and Tier 3 lenders with less than 0.5% market share. The analysis looks firstly at all respondents, then provides comparisons where appropriate between mutual and bank lenders and across the three tier groups. Lenders have provided figures representing the last full 12 months of trading that approximates to the tax year period for 2013/14. In general, an average figure has been used to illustrate patterns across the mortgage market and lender types. IRESS has taken all reasonable care to provide clear and accurate statistics based on the data provided by each participant. Please note that the data provided by the participants has not been independently verified. While this report has been prepared in good faith, no representation or warranty, express or implied, is or will be made and no responsibility or liability is or will be accepted by IRESS or any member of IRESS group of companies or by any of their respective officers, employees or agents in relation to the accuracy or completeness of this review or the use that is made by this review by third parties. The survey group of 10 lenders represents a significant percentage of the mortgage market with over 66% share of gross mortgage lending in 2013 equating to 119bn of loans. Participants The following 10 lenders covering 21 brands have supported the survey in Aldermore Clydesdale Bank Co-operative Banking Group HSBC Lloyds Banking Group National Counties Building Society Nationwide Building Society Royal Bank of Scotland Santander YBS Group

6 6 Section 1: Buyer types and distribution Buyer types The Bank of England and Prudential Regulation Authority published figures for Q show the overall value of the residential loan amounts outstanding in Q was 1,243 billion, an increase of 0.4% compared with Q and an increase of 1.2% over the past four quarters. The proportion of lending for house purchase in Q was 66.4%, some 1.8 percentage points lower than in Q The amount of gross advances for house purchase decreased in Q compared with Q but was 45.6% higher compared with Q1 2013, standing at 31.3 billion. In terms of buyer types the market has seen the following changes. The proportion of lending to first time buyers declined by 0.5 percentage points to 20.1% between Q and Q The value of residential loans advanced to first time buyers decreased over the quarter to 9.4 billion but this was still 3.2 billion greater than in Q1 2013, an increase of 52% The proportion of lending for remortgage increased by 0.9 percentage points from Q to 27.4% in Q The value of remortgage lending was 12.9 billion in Q compared with 10 billion in Q1 2013, an increase of 29% The Buy to Let proportion of lending increased to 14.4% in Q There was a 66% increase in value terms over the past year from 4.1 billion advanced in Q to 6.8 billion in Q This was the highest quarterly amount since Q The proportion of other new lending (including lifetime and Equity Release mortgages) increased from 2.7% in Q to 3.3% in Q Mutuals v Banks In the survey period, banks sold 7% more First Time Buyer mortgages and nearly 13% more Buy to Let mortgages than mutuals. None of the mutuals surveyed sold Equity Release mortgages whereas 9% of bank mortgage sales were for Equity Release. Mutuals sold a higher percentage of traditional loans Moving Home and Remortgage, 9% and 8% more than banks respectively. Across the tiers Tier 2 lenders have a higher percentage of Moving Home sales (35%) and Tier 3 lenders a significantly higher percentage of Buy to Let sales (50%) than the market averages of 27.5% and 23% respectively. Trends Over the three years of the survey, First Time and Equity Release buyer types have increased year on year, with Buy to Let appearing to reach a plateau between 2013/14. However, the most recent Bank of England figures, post this survey, (noted earlier in this section), show Buy to Let continuing to increase.

7 Buyer types First Time Buyer 30 Buy to Let 40 First Time Buyer Moving Home Remortgage Buy to Let Let to Buy Equity Release Second Home Banks Mutuals Tier 1 Tier 2 Tier 3 Total Banks and Tier 1 lenders in particular have provided the largest percentage of First Time Buyers. 0 Banks Mutuals Tier 1 Tier 2 Tier 3 Total 0 Banks Mutuals Tier 1 Tier 2 Tier 3 Total The First Time Buyer has increased year on year from 14% to nearly 19% of buyer types, reflected across both banks and mutuals. Across the three years of the survey, Buy to Let has decreased generally in both banks and mutuals but increased in Tier 3 lenders by nearly 20%. Buyer type trends Total First Time Buyer Moving Home Remortgage Buy to Let Let to Buy Equity Release Second Home

8 8 Distribution Intermediary distribution remains a key channel for many lenders with mutuals selling over 63% of mortgage via intermediaries and banks selling just over 51% Intermediary Telephony (Direct) Consumer (Internet) Branch Distribution 2014 ETC (IRESS Trigold) MTE (Mortgage Brain) Other Banks Mutuals Tier 1 Tier 2 Tier 3 Total Trends The consumer (internet) channel across the three years remains a small element within the channel mix. However, in the first half of 2014, a number of lenders have suggested that under MMR, the consumer (internet) channel will grow significantly from this low base as execution-only sales become a preferred choice of digital-savvy consumers. Across all lending, mortgages sold by intermediaries continue to be over half of the market. Intermediary market share dropped by 6.8% in 2013 to just over 55% but recovered slightly in 2014 to 56.3% 80 Distribution trends Banks Mutuals Total Intermediary Telephony (Direct) Consumer (Internet) Branch ETC (IRESS Trigold) MTE (Mortgage Brain) Other

9 9 Section 2: Sales channels The nature of retail finance is changing at pace. Industry reports such as Banking on the move by the British Bankers Association and Disruptive technology and changing customer behaviours by RBS, outline how technology continues to change customer demands and expectations. In this new internet of everything world, successful lenders must enable customers to connect with them on any device, via any channel and at any time. Skilled people are still required, after all this is the era of the MMR and Mortgage Credit Directive, but systems need to aid and automate the process in all areas of advice, sales and originations. Channel capabilities Across all distribution channels, overall system functionality at point of sale varies between channel and lender, though intermediary and telephony channels have the highest functionality both in 2014 and in each of the three years of the survey. Branch comes a close third place. Application transparency through case tracking has improved significantly in the intermediary channel but pick up in other channels has been less marked. Offer at point of sale declined in This is largely a reflection of enhanced MMR rules on income and expenditure, which for many applications will delay the offer until the relevant data has been captured and assessed as part of the origination process. Channel accept, decline and refer rates At Decision in Principle across the four distribution channels intermediary, telephony, branch and consumer (internet) the average levels of acceptance range between 53% in intermediary and consumer (the lowest), to 60% in telephony and 66% in branch (the highest). The intermediary channel has the highest combined levels of declines and refers at 46%, 10% more than the consumer (internet) and branch channels. The smallest declines and refers are in the telephony channel - only 31%. Offer at point of sale Following the introduction of MMR, the ability to deliver an unconditional offer at point of sale has been severely restricted with only one lender in 2014 providing this option. Developments by credit service vendors should enable lenders to make unconditional offers through electronic verification of income and expenditure in some circumstances. Future surveys will track how many lenders adopt these services. Online product switch A number of lenders have provided online facilities to enable existing borrowers to switch products at the end of a discounted or fixed period. Other lenders have indicated that they would like to offer such facilities post MMR. Within the survey group, only three lenders currently provide an online product/rate switch facility. A HSBC survey in May 2014 suggested that the online market for mortgages will double in size. Its poll of over 1,700 households found that nearly 16% of borrowers applied online for their current mortgage, with a further 33% saying they are likely to apply for their next mortgage online. It is anticipated that the Financial Conduct Authority (FCA) will be monitoring how many mortgages are sold in this way and ensuring consumers are not being steered away from advice. In this new internet of everything world successful lenders must enable customers to connect with them on any device, via any channel at any time.

10 10 Section 3: Originations - pipeline effectiveness Origination is the most time-consuming element of the mortgage buying process involving case reviews and multiple interactions with third parties such as valuers and solicitors. Lenders are beginning to enhance platforms to provide straight-through processing and case automation. However optimum levels of automation are still some distance away - reflected in the fact that only 42% of offers were made in 14 days or less. Relatively high levels of staff are still required to produce an offer or progress a case to completion. Average time to offer Number of days to offer is seen by lenders, applicants and intermediaries as the key measure of efficient customer service. On average 44% of offers are currently issued in less than 14 days, much lower than the 56% average in The average and best in survey percentages of cases are shown in the table below Days to offer 2014 < 5 Days % < 10 Days % < 14 Days % < 30 Days % Banks Mutuals Tier 1 Tier 2 Tier 3 Total Days Average Best in survey < 5 8% 38% <10 23% 65% < 14 44% 80% < 30 79% 100% Number of days to offer is seen by lenders, applicants and intermediaries as the key measure of efficient customer service.

11 11 Trends Across the three years so far covered by the annual IRESS survey, the percentage of offers issued in less than 5, less than 10 and less than 14 days has declined year on year. In the less than 5 days category, the average percentage of offers being issued has dropped from 25% to just over 9%. Offers issued in less than 10 days has also dropped by nearly a half to 23%. The impact of MMR and the need for more stringent affordability and plausibility tests are the most likely factors behind the drops Banks Mutuals Total Days to offer < 5 Days % < 10 Days % < 14 Days % < 30 Days %

12 12 Section 4: Post-MMR expectations Channel sales Following the implementation of MMR in 2014, lenders expectation of advised or executiononly sales and distribution across sales channels has varied little from In summary: 80% of lenders expect advised sales to increase 70% of lenders expect intermediary sales to remain stable and 30% believe they will increase 80% of lenders expect branch sales to stay level or increase as opposed to 20% who think they will decline 60% of lenders expect telephony sales to be unchanged or increase 60% of lenders expect execution-only sales to increase 80% of lenders expect advised sales to increase since the implementation of MMR in 2014.

13 13 Section 5: Social media Social media It would appear that lenders are starting to view social media in a much more positive light. For instance, Nationwide has invested in social media in response to the growth in digital. Paul Beadle, Nationwide s Head of Consumer and Social Media speaking at a recent Omni-channel banking conference pointed to a number of factors in support of this - 200% annual growth in the Nationwide banking app, 57% of customers signing onto banking via a mobile device; and 37% of sales now in the digital channel. Nationwide has a Twitter team of 10 in the heart of its customer service department. The lender s view is that profiling through use of big data is seeing a positive and growing engagement with customers, prospective customers and the press. Social engagement Of the lenders surveyed, 90% are either active on or considering using Twitter and 50% are already engaging with consumers. The story is similar with Facebook, with 80% active on or considering using Facebook and already engaging with consumers. The more business-to-business focussed channel LinkedIn is showing the least activity. The merits of YouTube as a means to boost consumer engagement are being realised, with two lenders producing video guides ranging from how to use banking apps to explaining what an ISA is. Twitter engagement Facebook engagement LinkedIn engagement Not Not considering 10% 10% Not Not considering 10% 10% Not Not considering 10% 10% Consumers 50% 50% Consumers Consumers 20% 20% Intermediaries 10% 10% Intermediaries 0% 0% Intermediaries 0% 0% Active Active 50% 50% Active Active Active Active10% 10% Considering Considering Considering Of the lenders surveyed, 90% are either active on or considering Twitter and 50% are already engaging with consumers.

14 14 Section 6: Mobile technology In the recent Cap Gemini and EFMA World Banking Report, one of the findings stated that customers are evaluating the quality of mobile services in their decisions to choose a bank or leave it. In addition, the CEO of Fidor, a German branchless bank was quoted by The Economist, saying that the smartphone is the new remote control for many people s finances. Retail finance organisations, including mortgage lenders are having to engage digitally with clients on mobile devices. Lenders are seeing investment in digital and mobile technologies as an important way to attract new business, reduce customer attrition and provide customer insight through big data analysis. Mobile services Across smartphones and tablets, 60% of lenders provide research and online marketing brochures; product comparisons, and one lender provides affordability, quote, DIP and full mortgage application services. No lender is currently offering case tracking. Planned mobile services Going forward, of lenders are expected to offer mobile quotations and affordability services; 30% plan to offer decision in principle (DIP) and full mortgage application on smartphones and on tablets. The survey also shows that of lenders intend to offer case tracking on both smartphones and tablets.

15 15 Section 7: Conclusion In the first half of 2014 the effects of regulation and government schemes on the mortgage market have been self-evident. Government schemes such as Help to Buy have certainly boosted the market, in particular for first time buyers. Though some market commentators are unsure if the measures are providing the best outcomes for the market and consumers alike. Regulation has impacted the mortgage sales and origination process. The Mortgage Market Review final rules came into force in April and this has produced a short term bump in lending volumes, but also ongoing change in both the elapsed time and complexity of the sales interview process. For some lenders it has also increased the time to provide an offer. As we move toward 2015 and beyond, further regulation will impact the market and consumers in the form of the EU Mortgage Credit Direct. The directive will provide a challenge for lenders with just a bare 12 months to design and implement the required changes. Aside from those challenges, it is clear from the findings in this survey, that investment in technology, improvements in efficiency and cost savings will continue to be at the forefront of the minds of CEO, COO and CIO executives across the market. Mobile technology, social media and customer service are converging demands that will require lenders to innovate both technology and process to be successful in this changing mortgage landscape. However, the market continues to grow with the CML revising their 2014 forecast to 208bn, the first time lending has been over 200bn since 2008.

16 For further information: Teamspirit PR: Dan Pike / Kate Cunningham, IRESS@teamspiritpr.com, IRESS: Debra Knott, Debra.Knott@iress.co.uk IRESS UK Limited