Blog: When the going gets tough, the tough diversify.

The need for professional mortgage advice has grown steadily in recent years.Interest rate volatility and the resulting market uncertainty, combined with the growing complexity of borrower finances resulted in 82% of mortgage borrowers turning to an intermediary to arrange their mortgage in 2022.

IMLA’s New Normal Report for 2024/2025 predicts that intermediaries’ share of lending will keep rising to 89% this year and over 90% in 2025.This is of course good news for the mortgage advice community.

But the bad news is that the total mortgage market is still shrinking.Having contracted by 27% in 2023, the market could fall by a further 10% in 2024 to £210bn.

The reduction in market size forecast for 2024 is not just a function of higher interest rates, but also a rise in the proportion of properties sold for cash.

In 2023, a record 54% of housing transactions were financed by cash, and that figure is set to rise to 58% in 2024.

There is already a smaller ‘pie’ to be shared.And this year’s rise in intermediaries’ share of business will not be enough to prevent the value of lending arranged by advisers from falling by around 6% this year.

All of which means the year ahead will see stiff competition between advisers.Those looking to maintain or grow their business levels must stay on the front foot, and this is likely to mean diversification into new sub-sectors of the market.The specialist arena may be a logical progression for the more ambitious.

Specialist lending has more than quadrupled over the past decade and has only accelerated since the advent of the pandemic and the more recent cost-of-living crisis.

Many people’s personal circumstances and borrowing needs have become increasingly more varied and complex, requiring specialist borrowing solutions – and, of course, the requisite accompanying advice.

Self-employment grew from 3.3 million in 2011 to 4.39 million in 2023 representing almost 15% of the workforce, and more people may well head down this route given technological advances, the rise of the gig economy and our increasing focus on work-life balance post-pandemic.

The economic squeeze is also likely to push more borrowers into the ‘adverse’ category – for instance, the number of consumer County Court Judgements issued in Q3 2023 was 259,343 up 14.6% on Q3 2022.

Advisers who are not currently operating in these market sectors might be wise to consider familiarising themselves with this specialist territory.

In the buy-to-let sector, gross lending fell by 48% last year to £30bn and is likely to fall slightly further to £28bn this year.But reports of a mass exodus from the market have been overplayed.

IMLA’s Landlord Survey (December 2023) revealed that, despite large rises in monthly repayments, 35% of all landlords and 50% of portfolio landlords still plan to expand their property portfolios over the next five years.

This has proved to be a resilient sector which will provide a significant customer base for advisers over the long term.In the short-term we are likely to see the trend to incorporation continue, so it could make sense for intermediaries to prioritise building relationships with those tax experts who are qualified to advise on buying property within a limited company.

Regardless of the prevailing economic conditions, mortgage borrower needs will continue to evolve away from the standard requirements of the past, as life becomes ever more complex.

Advisers who act now to broaden their skill set may not only be best placed to navigate the coming challenging year, but to better serve the increasingly diverse needs of their clients as we return to growth in the longer term.

Kate Davies is executive director, Intermediary Mortgage Lenders Association (IMLA)

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