2013 mortgageinsights highlights from CAAMP s fall 2013 Survey 2,000 Canadians have their say on the economy, the housing market, and choosing a mortgage. Written by: Kyle Davies Maritz Research Canada for the Canadian Association of Accredited Mortgage Professionals January, 2014
introduction mortgageinsights was written based on findings taken from research conducted by Maritz Research Canada for the Canadian Association of Accredited Mortgage Professionals. Canadian Association of Accredited Mortgage Professionals (CAAMP) 2235 Sheppard Avenue East, Suite 1401 Toronto, ON M2J 5B5 Maritz Research Canada 6900 Maritz Drive Mississauga, ON L5W 1L8 contacts Jim Murphy, AMP President and CEO, CAAMP 416 644 5465 jmurphy@caamp.org Kyle Davies Account Director, Maritz Research Canada 905 696 6243 kyle.davies@maritz.com about the research Results are taken from CAAMP s Fall 2013 Consumer Survey. This research was conducted online among a population of 2,000 Canadians, weighted to representative proportions in terms of home ownership and mortgage status within each region of Canada. This survey was fielded in October, 2013. author this mortgageinsights report was written by Kyle Davies Account Director Maritz Research Canada As the organization representing the brokers, lenders, insurers and other industry stakeholders operating within Canada s mortgage broker channel, one of CAAMP s priorities is to provide its members with timely information about the market, and about Canadian consumers and their priorities when obtaining a mortgage. It is with this priority in mind that CAAMP has partnered with Maritz Research Canada to conduct semi-annual consumer surveys for the past eight years. This report details many of the key findings taken from our most recent round of research, conducted in October, 2013. Along with CAAMP s semi-annual State of the Residential Mortgage Market in Canada reports prepared by CAAMP Chief Economist Will Dunning, this report is provided by CAAMP to its members as a tool to be used to help better understand and serve Canadian mortgage consumers, and ultimately to maintain and grow a healthy mortgage broker channel in Canada. January, 2014 2
the economy The Canadian economy, particularly the housing market, has been the focus of intense scrutiny and speculation for the past five years; Are we in a bubble? Will home prices crash? Have low interest rates drawn people into homeownership who should not be homeowners? When, and how much will home prices fall when the market corrects? These and many other questions are the focus of what seems like daily discussion and analysis. In the face of this often intense, usually negative narrative, our study findings show the Canadian public has remained surprisingly positive, optimistic, and resilient. Despite some nervousness about the economy overall, the majority of Canadians including homeowners remain confident and comfortable in their financial position, and the vast majority continue to believe that Canadian real estate is a good long-term bet. January, 2014 3
Canadians feel positively about the economy and housing market Rising debt levels of the average Canadian household have brought credit and debt under intense scrutiny over the past several years. While debt is often spoken of, and thought of, in a negative light, mortgage debt carries positive feelings for many Canadians, as the tool enabling homeowners to live the lifestyles they have chosen for themselves. Eighty percent of Canadians feel mortgages are good debt, likely in large part because 84% of Canadians feel as though real estate is a good longterm investment. While longer-term confidence remains high, some remain nervous about the shortterm economic outlook for Canada, with three-in-ten saying they are not optimistic about the economy in the next 12 months. While most groups of Canadians remain positive about the economy and housing, this positive outlook is slightly muted among the younger generation, with 27% of 18-34 year olds not agreeing that mortgages are good debt (compared with 20% overall), and 24% of 18-34 year olds saying real estate is not a good long-term investment (compared with just 15% overall). While not overly negative, these numbers do signal a heightened nervousness among this group, which no doubt impacts the decisions 18-34 year olds are making with regards to spending, investing, and real estate. January, 2014 4
Expectations of next year s growth have decreased to 2008 levels. Most expect housing price stability or growth in the next five years One metric that has softened substantially since 2012 is the extent to which Canadians expect housing prices to increase in the next year. After 2008, this metric jumped to levels much higher than they were pre-recession, and they remained steady for several years. 2013 is the first time we have noticed a sizeable drop since the recession, back to pre-2008 levels. This indicates that while long-term confidence remains high, there is some increasing uncertainty about where housing prices will go in the next year. Over the next five years, most Canadians expect stability or slow growth in home prices, however very few (3%) expect the rapid growth that has been prevalent in the housing market over the past decade. One-in-five expect slow declines in values, while one-in-ten expect the bubble to burst. Optimism in housing prices is highest in Alberta (where those who expect increases more than double those who expect decreases) and BC, and lowest in Atlantic Canada and Ontario though in all regions, more people expect increases rather than decreases over the next five years. For mortgage professionals, these differences in regional confidence may signal a meaningful difference in consumer confidence and attitudes around homebuying, and their mortgage. Western clients are very likely to be bullish; however, those in Atlantic Canada and Ontario may be substantially less optimistic about their decision. As much as possible, a confident and knowledgeable mortgage professional may be able to provide helpful guidance and confidence through what could be a stressful time. NOTE: calculation is the percentage who expect increases, divided by the percentage who expect decreases. January, 2014 5
the emotions of homeownership As the biggest investment most people will make in their lives, strong emotions often go hand-in-hand with real estate and mortgage origination. These emotions, though often irrational, play a key role in the decisions people make with regards to the companies, people, and even the products they deal with. Various writers and economists have speculated about the emotional health of the debt-burdened Canadian, speculating that giant mortgages have left a sizable portion of house owners living lives of quiet desperation 1, and [homeowners] are trapped, literally and figuratively, by those four walls around us 1. The reality is, while there is a natural level of nervousness and apprehension in the market, the vast majority of homeowners are comfortable with their homeownership and with their mortgage, and would make the same decisions over again. 1. Why owning a home is bad for you, www.macleans.ca, September 29, 2013. January, 2014 6
How do you feel about your primary residence? While it may not be surprising to see people happy about their homes, it wouldn t be unreasonable to expect a different picture when we ask people to focus instead on their mortgages. However, Canadians are very positive even when thinking about what is, in many cases, their biggest form of debt. Eight-in-ten mortgage-holders used at least one of comfortable, content, confident, and/or secure to describe their feelings about their mortgage, while less than one-quarter used either nervous or stressed. While 22% feeling nervous or stressed is nothing to ignore, and something mortgage professionals When we asked Canadian homeowners to choose the emotions that best represented how they feel about owning their primary residence, the reaction was extremely positive. Nearly three-quarters are comfortable, one-half are content, while more than four-in-ten are secure and/or happy. Many people feel excited when they first buy a home, and we see that this emotion has carried through for three-in-ten homeowners. Contrast this with one-in-ten or fewer who indicate any of the negative emotions we tested, including stuck (10%), bored (7%), stressed (6%), or worried (6%). How do you feel about your mortgage? should look for and service accordingly, it is not necessarily surprising or indicative of a problem; a recent StatsCan study shows that roughly one-quarter of Canadians are stressed in their everyday lives 1, meaning that mortgages stress people slightly LESS than every day life. 1. http://www.statcan.gc.ca/pub/11-008-x/2011002/article/11562-eng.htm January, 2014 7
broker channel success Mortgage brokers remain a key channel Canadians look to for mortgage information, advice, and arranging mortgages. In fact, 28% of outstanding mortgages were originated by mortgage brokers (self-reporting), the highest share for mortgage brokers going back over five years of tracking. Broker share of outstanding mortgages jumped from 25% in 2012 to 28% in 2013 (an increase of 12%) due largely to a 40% share of all new mortgages that were taken out in calendar year 2013 prior to the time of our survey (only slightly lower than the 42% share held by the banks). Other channels, such as Credit Unions and financial divisions of insurance companies, spiked in share after the 2008 recession, but have settled back into market share numbers in the high teens. January, 2014 8
As a channel, mortgage brokers do particularly well among younger Canadians (aged 34 or less) and first-time homebuyers, who turn to brokers over 40% of the time. The mortgage broker value proposition of advice, counsel, and service resonates well with this audience, many of whom are less familiar with mortgages and appreciate being helped through the process. There are several key components of market share, but the two most important for brokers are consultation rates; that is, how many people are consulting with brokers, and conversion rates; the percentage of those consultations that decide to do business with a broker. To best understand where the direct-to-lender channel (i.e. banks) hold an advantage over mortgage brokers, we decided to look at both of these elements. As shown below, banks hold a distinct advantage over mortgage brokers on BOTH consultations, and conversion. As a channel, the mortgage brokers need to continue to do a better job informing Canadians of their presence and value to continue to increase consultations. But the lowest hanging fruit for improvement is very likely in conversion. Why are brokers losing one-third of their potential clients, while banks are losing just one-infive? On the following pages, we explore potential actions those in the broker channel could take to increase both consultation and conversion rates. January, 2014 9
One of the big reasons for the recent success and growth of the Mortgage Broker channel in Canada is very likely the increasing levels of awareness Canadians have of the services provided by a mortgage broker. While there is much room for continued improvement, the proportion of Canadians who say they have a full or good understanding of broker services has increased by one-third, from 33% to 44% over the past three years. This impacts market share in a very direct way; those with a good or full understanding of broker services give substantially more of their business, as a proportion, to brokers than those who have a lesser understanding of broker services. To improve consultation rates, it is vital for the mortgage broker channel, and its members, to continue to educate consumers on the who, what, where, why, and when of mortgage brokers. The best place to start would be to look at the reasons WHY consumers deal with mortgage brokers. Rates are important; they represent a key advantage the broker channel has over banks, but the interesting finding from our research is that it is FAR from the only reason customers choose brokers. In fact, the average broker customer gave us 3.7 distinct reasons why they chose a broker. Many customers see mortgage brokers as valuable consultants, helping them get multiple quotes, doing the research for them, helping customers understand their options, and helping with the paperwork; these reasons were all cited by one-third or more broker customers. These are the things that should continue to be communicated to Canadians about mortgage brokers, in the battle to continue increasing customer awareness beyond the current 44%. January, 2014 10
We also asked Canadians why they chose NOT to deal with a mortgage broker. The second and third most common answers are also ones that should be tackled head on in communications and education about the broker channel. First, there is still a perception among more than onequarter of non-customers that they will pay for a broker s services. While this is true in unique circumstances, it is not largely the case. Second, lack of familiarity with monoline lenders is a challenge for the broker channel, and a reason why 21% of non-customers are non-customers. Our previous research has shown that this may be a hurdle, but it is not a roadblock. Direct and purposeful communications to customers about the length of time a monoline has been in operations in Canada, their financial health, and personal experiences/anecdotes can go a long way to establishing comfort with a previously unknown Lender. One finding from our study that stuck out was in relation to the number of quotes consumers get from their mortgage broker. Getting multiple quotes is the second-most common reason a customer deals with a broker, yet 57% of broker customers tell us they received just one quote from their broker. This is a HUGE disconnect, and likely a key reason why broker conversion rates are so much lower than banks. Customers have chosen brokers at least in part for choice; they want to feel as though they are getting sound advice and recommendations, however they also want to feel as though they have played a role in the decision. Whether the choice is between two lenders, or even just between two different mortgages such as fixed or variable, mortgage brokers should give their customers at least two options, along with a clear recommendation of the option they believe is best for their customer. January, 2014 11
mortgage customer segmentation Mortgage brokers provide great value and service. The advice, consultation, hand-holding, research, and paperwork is of great value to many Canadians. However, brokers are not for everybody. Some people like to deal with banks. Some people like to do the research themselves. Some people just don t care about anything but getting the deal done and out of the way. For the first time, in this year s study we conducted a market segmentation analysis to understand the different types of mortgage customers, so we can better understand the attitudes, behaviours, and priorities that make a broker customer different from the rest. The results of our analysis shows five sizeable, yet very distinct groups of customers, who think and act very differently when it comes to their mortgages. They are profiled on the following pages. January, 2014 12
The largest group is called Advice Seekers, and these customers like to have options, to get good sound advice, and are very open to dealing with a company whose primary (or sole) business is mortgages (as opposed to a bank with many products and services). They are between 35 and 54, often have a family, they skew slightly female, are full-time employed, and earn between $60k and $125k per year. VERDICT: These customers are PERFECT for mortgage brokers. Mass communications should be geared toward the lifestage, demographics, and attitudes of this group, as they have shown they are very likely to consider the services of a mortgage broker. January, 2014 13
The second largest group is called Carefree, and these customers are less likely to have a mortgage, and are less likely to care about it if they do have one. They are not interested in shopping around, don t want to be cross-sold, only want minimal contact from their mortgage professional, are not open to additional advice and recommendations, and would prefer to deal with a bank. VERDICT: These customers are NOT an ideal target for mortgage brokers. They may however not be a lost cause as they can be convinced to work with a broker in some cases, but this audience should not be a key marketing or communications target for the mortgage broker channel. January, 2014 14
The third largest group is called Vigilant, and these customers are the polar opposite to Carefree. Vigilant think about all aspects of their mortgage, they seek out great quantities of advice, appreciate proactive communication, would like to be presented with options to choose from, and want to deal with a mortgage company (rather than a bank). They tend to be male, 18-34, and many will be renewing a mortgage since they are already homeowners. Their $60k-$100k household income is modest, meaning they are especially open to advice about how to save money on their mortgage. VERDICT: These customers are IDEAL for mortgage brokers. They want everything brokers are good at options, service, communications, and great rates. This group is likely to do business with a broker, but will evaluate them very carefully against other options in the market. January, 2014 15
The fourth largest group is called DIYers. DIYers are older, tend to be male, and tend to already be a homeowner. Because they are more advanced in their careers and unlikely to have family in the home, they have time to spend on their mortgage, and tend to want to do the work themselves. They like to do research themselves, and are not generally open to advice from family, Realtors, or other professionals. VERDICT: These customers will do business with brokers, but only after comparison with other options. Their copious research may inform them a certain lender is the best option for them, which may make them an easier customer to work with since they know what they want, however their research appears to lead them to banks more often than not, making them a low priority for broker channel focus. January, 2014 16
The smallest group (though still representing 18% of the market) is called Set it and Forget it. This group puts forth the necessary amount of thought and work to be comfortable with their mortgage selection, however after the mortgage has been placed they don t think about it again until it is up for renewal. They tend to think they do not need much help from a mortgage professional, are less likely to shop around, and are less open to cross-selling. Though research will be done to make them comfortable with their selection, it is unlikely to be thorough. VERDICT: Since they do not feel as though they need help from a mortgage professional, this group is not a great target for mortgage brokers. January, 2014 17
Advice Seekers give 49% of their business to mortgage brokers, while Vigilant give a 33% market share to brokers, both substantially higher than the broker share among the other three, less-engaged audiences. For mortgage brokers, understanding these segments is key to future success. Below, we can see the top eight qualities these two audiences are looking for. The blue qualities are also things EVERYBODY is looking for, while the orange are things that are important to these broker target segments, but not the others in other words, these are the things brokers need to be BETTER than the banks at. From this data, we see that brokers should continue to focus on: Getting the right frequency of post-sale contact (but make it RELEVANT) Making customers feel valued Offering a wide selection of products and options January, 2014 18
advice for brokers Based on findings from this study and past studies, we make three recommendations to brokers to increase share, satisfaction, and loyalty: Broker customers are looking for professionalism and help, but they are also looking for a relationship. The relationship with a mortgage broker should include a healthy mix of desired personal and business qualities and skills. Broker customers want options. They don t just want you to tell them you evaluated a number of options, they want to see them, understand them, and work with you to decide which one is best for them. Those who have made a choice are much more satisfied and loyal. For brokers, this may mean presenting two different lender options, or it may be as simple as presenting a fixed and variable rate option from one lender, along with a strong recommendation on which one you think is best for them. Either way, a customer who feels like they were part of the process is much more likely to be a happy customer. January, 2014 19
advice for brokers (continued) It is difficult to maintain a healthy frequency of communications, and to have those communications stay relevant. One way to do this is to try to widen the scope of topics your customers think of you for but not TOO wide! A Happy St. Patrick s Day email is not relevant, and does not keep you top-ofmind. Rather, you may want to make yourself into a trusted source of home advice by providing useful and relevant communications to customers about how to get the most out of their home. It s winter: did you remember to turn off your outdoor faucet?. Do you need a new roof? Here are five things to think about. These types of communications may not be read every time by everyone, but they stand a good chance to keep you top-of-mind, so that when the customer has a question about their mortgage, there is no doubt who they will call. January, 2014 20
about the contributors About the Author Kyle Davies is an Account Director for Maritz Research Canada. He has over 10 years of experience conducting marketing-research based consulting for some of Canada s leading organizations, focused primarily in the financial services, telecommunications, and retail sectors. His work often focuses on helping clients to gain a better understanding of customer sentiment, and helping them to harness that knowledge to create happier and more loyal customers. He can be reached at: Maritz Research Canada a division of Maritz Canada Inc. Maritz Research Canada provides consultative services based on primary marketing research to many of Canada s top companies and organizations. Our focus is on helping our clients to understand and optimize customer experience and loyalty. Maritz Research is a Gold Seal Member of Canada s Marketing Research and Intelligence Association (MRIA), and is the world s 12th-largest marketing research company. kyle.davies@maritz.com 905.696.6243 Canadian Association of Accredited Mortgage Professionals (CAAMP) CAAMP is the national organization representing Canada s mortgage industry. With over 12,000 mortgage professionals, its membership is drawn from every province and from all industry sectors. This diversified membership enables CAAMP to bring together key players with the aim of enhancing professionalism. In 2004, CAAMP established the Accredited Mortgage Professional (AMP) designation to enhance educational and ethical standards for Canada's mortgage professionals. Established in 1994, CAAMP has taken a leadership role in Canada s mortgage lending industry and has set the standard for best practices in the industry. CAAMP s other primary role is that of consumer advocate. On an ongoing basis CAAMP aims to educate and inform the public about the mortgage industry. Through its extensive membership database, CAAMP provides consumers with access to a cross-country network of the industry s most respected and ethical professionals. January, 2014 21
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