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Research carried out by Retail Finance Intelligence (RFI) examined the buying habits of 2,000 borrowers when obtaining a mortgage in order to answer two vital questions: what do customers value in a service provider and what are the characteristics of potential customers? AB highlights the key findings.

According to RFI brokers are facing growing competition from the internet channel.

While only 6% of the respondents who took part in the June 2009 survey sourced their mortgage online, this channel is expected to grow and cut into a traditional broker’s business as the variety and complexity of available loans decreases.

Therefore, an understanding of what customer’s value in their service provider and what makes customers tick is vital information if brokers wish to remain an attractive channel in such a competitive market place.

Time poor and seeking specialist knowledge

According to RFI research, the broker proposition is most appealing to borrowers aged between 25 and 44, in particurlarly those aged between 25 and 34, where 47% turn to a broker when making loan enquires.

The vast majority of people in this age category would be taking out their first home loan and turn to a broker for specialised help and assistance in an area that they may not be familiar or comfortable with.

Younger age group borrowers, the RFI report says, are also likely to be associated with heavy workloads and young families, and see using a broker to conduct enquiries as a quick and easy way to carry out research and find a loan.

The good news is that, regardless of age, once someone makes an enquiry through a broker, 87% of them will use the same channel to apply for their loan. This is higher than the conversion rate via branches (80%).

And while it’s concerning that more than one in ten (13%) borrowers who initially enquire about a mortgage via broker, then obtain it via a different channel, the good news is that there are opportunities to pick up business from other channels.

According to RFI research one in five respondents who used the internet to make home loan enquiries then used a broker to obtain their home loan, while only 22% actually went ahead and applied over the internet and 36% through a branch.

These results indicate there is a significant opportunity to capture these customers through high internet visibility and customer targeting.

Research first, broker second

The RFI research found that among the group of borrowers most likely to use a broker 
(those aged between 25 and 44 years of age) there is a high proportion that do their own research before they start looking for a property or see a broker – 28% of 25-34 year olds and 29% of 35-44 year olds – a higher percentage than of the other age groups.

In other words, one out of every four ‘young’ borrower coming into a broker’s office is likely to be fairly knowledge about lenders and product.

On the other hand, older borrowers (those in the 55-64 year age group) are most likely to visit a broker initially, with 15% not conducting any other research in regards to their mortgage.

All this suggests that brokers need to adapt their sales approach dependent on the age of the borrower – younger borrowers are more likely to expect specialist knowledge at the initial consultation while older borrowers may have a preference for receiving basic information about products and lenders.

Good reputation is vital

So, if a borrower decides to use a broker to get a mortgage, how do they come to a decision about which broker to use?

According to RFI research, 56% of respondents found their broker through a recommendation from a friend or family member indicating that providing a satisfying customer experience should be top of every broker’s list of priorities.

Advertisement is also important with nearly a quarter of customers (22%) saying they found their broker this way.

Internet searches accounted for 12% of respondents while 8% had been contacted proactively by their broker with RFI highlighting this statistic as significant “indicating an opportunity for brokers willing to make cold-calls”.

Interestingly, sponsoring a local event or team appears to be of little value in bringing in business, attracting just 1% of the respondents who had used a mortgage broker.

Advertise where property investors look

Brokers looking to attract the attention of property investors seeking a loan should consider advertising on personal finance websites popular with these borrowers.

While investors have a preference for financial institutions when doing research (65% stated that they would conduct research using a financial institution’s website, 31% would call a financial institutions and 30% would visit the financial branches) a high proportion conducted research using popular websites and magazines like Your Mortgage.

Strategically placed advertisements about a broker’s service offering in these publications would have a high chance of attracting the attention of those property investors that do their research via these platforms.

Turn on and turn offs

Just as important as knowing what draws a borrower to a broker is knowing what turns them away from the third party channel.

RFI asked respondents who they would contact to refinance their loans in a variety of different circumstances, with the available choices being their existing lender, their existing broker, another lender, another broker, or ‘unsure’.

For borrowers who took their loan out through a broker, the main distinction was not between contacting their broker and another broker, but rather between contacting their lender and contacting their broker.

The results indicated that respondents show a certain level of loyalty towards their broker and were more likely to contact their broker (as opposed to their lender) for issues regarding changes in circumstances, such as starting a family or difficulties with repayments and needing additional finance.

Receiving poor customer service from their existing provider was also another strong reason for contacting their broker.

However, 47% of broker customers said they were unsure who they would contact if they were unhappy with their existing loan with only 11% saying they would contact their existing broker. In comparison, 62% of non-broker customers would contact their existing lender in this situation. These results indicate that brokers who provide some reassurance about what they should if they are unhappy with their mortgage might generate greater repeat business and more loyal customers and would be less at risk of losing their client to a direct channel.

A key concern emerging from the research was the potential for brokers to lose out to direct channels for business from those seeking investment loans. This is due to these customers being more experienced and less likely to need the expert assistance of brokers.

“As a result, it is important for brokers to be able to distinguish and provide services which are valued by customers,” RFI said in its conclusion.

Overall RFI identified the two main groups of customers who use brokers as those who want a ‘quick and easy’ method of carrying out research into a variety of lenders and loans, and those who want the broker to ‘take care of the process’ almost entirely on their behalf.

In general borrowers aged 25-44 are more likely take out their loan or conduct research through a broker.

And with the survey results showing that more than one half of broker customers found their broker through a recommendation, providing a positive experience is important for individual brokers and the channel as a whole if it wishes to remain a popular alternative to direct channels.

The success of the channel, RFI found, rests on providing the services which are valued by customers, as well as appropriately managing expectations.

As for opportunities, brokers should look to plug the leakage of 13% of all borrowers that made enquiries via a broker but actually apply via an alternate channel and should look to capitalise on the one fifth of customers who conduct research via the internet but take out their loans using a broker.

This second part, RFI found, can be achieved by “appropriate internet visibility”.