Will the MMR lift or reduce intermediary mortgage lending?

From late April, virtually all interactive mortgage sales (involving a face-to-face or phone conversation with a borrower) will have to be on an advised basis. How will this affect channel selection by borrowers?

According to BVA BDRC’s Mortgage Achilles study, half of intermediaries thought this change would increase intermediated business. Just 3% thought it would reduce it. The rest were unsure what the effect would be.

Our business confidence measure also reported that some intermediaries were volunteering the impending MMR rule change as a reason for feeling more confident about the business outlook.

These studies suggest the outlook amongst intermediaries is overall a positive one. Intermediaries' main rationale is that giving advice is meat and drink to them but a new challenge for many lenders, who have previously worked on an information-only basis and may struggle to adapt to the new environment.

At the same time, however, consumers were much less certain of the impact of this change. The study asked mortgage holders intending to seek a new mortgage in the next couple of years about their likely channel choice. The new rule on interactive sales was then explained to them and they were asked to think again on the likely channel choice for their next mortgage.

Hardly any consumers changed their view between these two questions: their first thought was that current behaviour would largely continue under the new rule. Just a handful of potential borrowers revised their channel choice, but most of these moved from ‘I will use an intermediary' to ‘I don't know'.

Two different groups with two different answers: which is right? Opinion has not yet formed among consumers - most were unaware of the impending rule change until it was explained in the interview - so their opinions may change as their knowledge and experience builds. On the other hand, the great majority of intermediaries in our study were aware of the new rule. Their opinions will be more formed but - like most people in business - probably subject to an optimistic bias.

In practice, the rule change is no change for intermediaries but a big change for many lenders. It seems likely that there will be very little change in channel choice at first. Thereafter, the long-term outcome will depend on how well lenders perform in the advised sales arena and whether consumers come to feel that there is a meaningful difference between ‘lender advised' and ‘intermediary advised'.