"With the recent increase in PTs, and the procuration fees as we know tending to be lower with the odd exception, this shift has created a pressing need for advisers to find alternative ways to bridge that potential income gap."
It won’t need me to point that, in the past 12 to 18 months, the UK mortgage market has witnessed a significant shift towards product transfers (PTs).
According to the latest figures from UK Finance, product transfer business increased by 11% in 2023, reaching a substantial £219 billion. Although this figure is expected to see a slight decrease to £202 billion in 2024, the overall market clearly remains robust. This shift presents unique challenges for mortgage advisers, but it also offers new opportunities for income diversification through ancillary sales.
Traditionally, mortgage advisers have relied heavily on remortgage business to generate income. Remortgages typically attract higher procuration fees from lenders, providing a substantial revenue stream for advisory firms. However, with the recent increase in PTs, and the procuration fees as we know tending to be lower with the odd exception, this shift has created a pressing need for advisers to find alternative ways to bridge that potential income gap.
One effective strategy to make up for the shortfall in procuration fees is to focus on ancillary sales. These include protection products, general insurance, conveyancing, surveys, and legal services. Among these, conveyancing presents a particularly lucrative opportunity. Advisers who provide comprehensive mortgage advice, including conveyancing, can deliver significant benefits for both their clients and their firms.
Conveyancing is a crucial yet often overlooked aspect of the mortgage process. Many clients lack knowledge about conveyancing or are uncertain about which conveyancer to use. By offering conveyancing advice, mortgage advisers can enhance their value proposition, ensuring clients receive a seamless and informed experience.
Utilising platforms like Broker Conveyancing simplifies the conveyancing process for both advisers and clients. These portals provide access to a network of reputable conveyancers, making it easier for advisers to recommend reliable services. Moreover, advisers can add fees and – in our case - any income is paid at the exchange stage, rather than waiting for completion, thus improving cash flow.
An unnamed adviser firm owner recently told me how important ancillary sales had become to their business and its ongoing viability. The owner, like many firms I suspect, had noticed a drop in income over the last 12 months due to the shift towards PTs.
In response, the firm effectively mandated that all advisers explore and offer ancillary sales opportunities including conveyancing. This proactive approach not only stabilised the firm's income but also enhanced client satisfaction by providing comprehensive service offerings.
While conveyancing is a significant opportunity, advisers should also consider other ancillary sales avenues:
1. Protection products: Life insurance, critical illness cover, and income protection are essential products that safeguard clients' financial well-being. Advisers can integrate these offerings into their mortgage advice to provide holistic financial protection.
2. General insurance: Home and contents insurance are crucial for mortgage clients. Advisers can partner with insurance providers to offer competitive policies, adding value and generating additional income.
3. Surveys: Advisers can recommend trusted surveyors ensuring clients receive a quality survey service; tis not only enhances the client experience but also creates additional revenue streams. Through Broker Conveyancing’s partnership with The Moving Portal advisers can offer a full product suite from a basic valuation, homebuyers’ report and building survey.
We should also not forget the regulatory aspect to all this. The FCA’s Consumer Duty regulations play a pivotal role here and are reshaping the future of mortgage advice. These regulations mandate that advisers must deliver positive consumer outcomes across various product areas, not just mortgages. This directive should therefore as a catalyst for advisers to explore and meet a broader range of client needs, particularly if they are not doing so already.
Lest we forget, we are almost a year into this new environment, and with Consumer Duty, advisers are encouraged to adopt a client-centric approach, identifying and addressing multiple financial needs. By doing so, they can ensure compliance while simultaneously creating new business opportunities. This holistic approach should actually help mitigate against the increasing trend towards PTs, enabling advisers to diversify their income and deliver comprehensive financial advice.
While PT business has seen notable growth, it was anticipated that remortgaging would receive a boost due to lower interest rates expected in 2024. Certainly, in the early part of the year that seemed likely, but as we know, that situation didn’t last very long, and since we have seen rates move back. We might get those rate cuts in the second half of the year, but this ongoing uncertainty underscores the importance of diversifying income streams and capitalising on ancillary sales opportunities.
The rise in PTs presents both challenges and opportunities for UK mortgage advisers. While the shift may result in lower procuration fees, it also opens the door for income diversification, not just through ancillary sales, but potentially via a move into product sectors which can deliver more income bang for your buck.
By embracing conveyancing advice and other ancillary services, advisers can enhance their value proposition, improve client satisfaction, and stabilise their income.
Moreover, the FCA's Consumer Duty regulations reinforce the need for a holistic approach to financial advice, encouraging advisers to meet a wider range of client needs. As the mortgage market continues to evolve, advisers who adapt and expand their service offerings will be well-positioned to thrive in this dynamic landscape.
By leveraging the full spectrum of ancillary sales opportunities, mortgage advisers can not only bridge the income gap but also build stronger, more enduring client relationships. This strategic adaptation should ensure long-term success in an increasingly competitive market.
