Analysis: No LMI. No trail. No rate discounts. No good?

The global finance industry is undergoing a significant shift away from traditional branch banking, which plays right into the hands of intermediaries and technology providers.

We have already seen this happen in Australia, where a customer walking into a branch for a home loan is now an anomaly.

In the UK, intermediaries command a 70 per cent share of the mortgage market. 

However, there are a few key differences between our market and theirs that you might find interesting:

No LMI

That’s right. There is no mortgage insurance requirement on higher-LVR home loans in the UK. To mitigate the risk of a smaller deposit, British banks instead charge a higher interest rate.

However, this means that borrowers on a lower LVR (say 60 to 70 per cent) pay a substantially lower rate on their mortgages. Unlike in Australia, fixed rates are the fashion, so borrowers typically receive cheaper rates every few years when they refinance (provided they have been paying down their loan as the property price increases, consequently lowering their LVR).

No mortgage discounting

Unlike Australian lenders, British banks do not offer discounts to borrowers. It doesn’t matter if you visit the branch, go to a broker or apply online. Even if you have been a loyal customer for decades, you will not receive a discount on the rate. This is one negative impact of strong regulation. However, it could also minimise channel conflict and place a greater emphasis on service — an area where brokers have traditionally had the upper hand.

No trail

Trail wasn’t removed, it simply never existed in the UK in the first place. This has had a number of consequences. Firstly, because the UK mortgage market is dominated by fixed-rate home loans, borrowers often get churned every few years by brokers looking for another up-front commission.

However, a lack of trail has forced UK brokers to broaden their service offerings to include insurance and wealth products. In fact, these products are almost a necessity for UK brokers if they want to survive.

So cross-selling is a big deal, as is ongoing education and up-skilling.

Lending curbs

Similar to measures by APRA and the RBA, in June 2014 the Bank of England (BoE) introduced limits on high-LVR lending and imposed stress testing on prospective home buyers.

In an effort to cool the UK’s overheating housing market, the BoE’s Financial Policy Committee announced that lenders must ensure no more than 15 per cent of new mortgages are given to people borrowing more than four and a half times their income.

British banks have also been made to stress test borrowers’ ability to repay loans in the event of a 3 per cent rate hike.

The biggest regulatory change to effect the UK home loan market was the Mortgage Market Review (MMR), which started with a discussion paper in 2009 and culminated in a policy statement and final rules in October 2012.

The majority of the MMR changes came into effect in April 2014. They were comprehensive and wide-ranging, with different policies for banks and brokers.

Two years on, greater regulation in the UK has seen broker market share surpass 70 per cent.

How did they do it?

Australian mortgage brokers have a significant opportunity to learn from their offshore counterparts as shifting regulation reshapes the third-party channel.

The Adviser will take an exclusive delegation to meet the architects of the UK’s most successful broking businesses. This is your chance to gain a competitive advantage by learning from an industry that has been through the regulatory wringer and emerged triumphant.

The Adviser’s UK Study Tour 2016 will provide brokers with unique insights into a mature and booming market. During the packed two-day London conference, we will hear from high-level speakers including:

• Andy Gray, former managing director of mortgage at Barclays
• Peter Brodnicki, CEO of the Mortgage Advice Bureau
• Patrick Bunton, operations and compliance director at London & Country Mortgages
• Sally Laker, managing director at Mortgage Intelligence
• Stephen Smith, chairman at Legal & General
• Sidney Wager, director of intermediary distribution at Barclays
• Robert Sinclair, CEO of the Association of Mortgage Intermediaries
• Paul Smee, director general, Council of Mortgage Lenders

For more information on this exclusive event, contact Craig Lynch from The Adviser on 02 9922 3300 or This email address is being protected from spambots. You need JavaScript enabled to view it..

[Related: FBAA to review broker commissions]