IMLA Mortgage Market Tracker Q2 2020 Insights

IMLA Mortgage Market Tracker Q2 2020 Prepared for the Intermediary Mortgage Lenders Association (IMLA)

Contents 1 Background & methodology 2 Executive summary 3 Business volumes and confidence 4 Business flow

Background & methodology

Background & methodology The Intermediary Mortgage Lenders Association (IMLA) launched the Mortgage Market Tracker in November 2015. The Tracker uses data provided by BVA BDRC s Project Mercury. Project Mercury is a continuous monitor of intermediary lender marketing effectiveness and broker sentiment, launched in 2007. Existing business confidence questions on the survey are supplemented by additional questions measuring the conversion of Decision In Principle (DIP) to completion. This report contains the results for Q2 2020. WHO? HOW? HOW MANY? Total of 200. Achieved sample weighted by firm size & type to be representative of the Touchstone and Autus universes Mortgage Intermediaries advise customers on which lender to use, 24+ mortgages pa, not tied wholly to one lender, GB based. Sample sourced from Autus Monthly telephone interviews (100 per month), average interview c.30 minutes. Fieldwork by PRS (our sister company) NOTE: We took the decision to pause the Project Mercury fieldwork in April, as it became difficult to get hold of intermediaries in the peak of lockdown. Therefore Q2 2020 findings are based on results from May and June

Executive summary

Executive summary In Q2 the impact of Covid-19 could be seen very clearly when looking at both confidence levels and business flows. Intermediary confidence saw some improvement vs. March, however it still remained some way behind the levels seen in 2019. Compared to March 2020, there were some signs of hope, and some intermediaries saw business levels start to increase again. However product availability and lending criteria was a key challenge making things more difficult for intermediaries. Across the full business flow, 27% of DIPs resulted in a completion in Q2, down from 47% in Q1 and 55% in Q4 19. Conversion decreased the most among firms in the north, directly authorised firms, and those dealing with specialist or first time buyer mortgages. Looking across the full business flow, conversion levels dropped at every stage in Q2. The biggest drop was for conversion from offer to completion. In Q2, 59% of offers resulted in a completion, compared to 79% in Q1 and 85% in Q4 19.

Business volumes and confidence

Claimed volumes of mortgage cases, per year Bank of England figures showed the extent to which mortgage lending decreased in Q2. Claimed case loads are based on the past 12 months, which resulted in a more positive figure in Q2. The business mix remained stable. All mortgages Average business mix (% of all cases per year) bn Gross lending on all mortgages per qr (Source Bank of England) Average no. of cases per year Jan: 74 Feb: 88 March: 81 May: 86 June: 87 (19) Movers 20 (20) First Time Buyers 19 63% residential (17) Full remortgage 16 (9) Product transfer 9 90 88 87 87 86 86 84 81 81 81 81 80 80 77 74 73 69 (16) BTL 1- 3 properties 17 29% BTL (7) BTL 4+ properties 7 44.1 Limited Co BTL 5 (5) (3) Adverse 3 8% Specialist Other specialist 4 Q4'18 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 (4)

Confidence in outlook for mortgage industry Confidence in the outlook for the mortgage industry dropped in Q2 20. Confidence peaked in February, before dropping significantly in March. There was some improvement in May and June, although confidence remained a long way behind the levels seen at the beginning of the year. H1 20 by month 14 16 19 22 29 29 30 31 34 37 39 40 40 40 41 42 42 43 43 45 45 45 53 37 60 63 66 45 60 63 60 61 58 28 56 53 56 55 54 52 53 55 52 51 52 52 44 19 12 13 3 Q2 20 19 8 4 8 1 7 1 7 1 6 1 7 5 1 4 1 6 4 1 3 1 5 4 4 4 4 2 1 2 1 4 3 3 May-20 Mar-20 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Feb-20 Jan-20 Jun-20 Very confident Fairly confident Not very confident Not at all confident QH1a. Currently, how confident do you feel about the business outlook for the mortgage industry? Base: All respondents (200)

Confidence in outlook for intermediary sector In Q2, intermediaries appeared to be feeling more confident about the intermediary sector than about the wider industry. Nevertheless confidence levels were still lower than pre-Covid levels, with fewer intermediaries feeling very confident . H1 20 by month 20 32 34 36 43 44 46 46 48 48 49 50 51 51 52 52 54 56 57 58 60 60 63 40 53 54 55 40 49 49 48 47 46 46 24 44 48 46 46 43 46 41 41 39 37 37 33 9 5 15 14 10 1 Q2 20 5 3 May-20 5 1 Q4 18 6 4 1 Q4 19 4 1 Q3 18 4 1 Q3 19 5 4 Q2 18 2 1 Q1 18 4 Feb-20 1 1 Q1 16 3 Q2 16 1 1 Q4 16 2 Q3 16 2 Q1 17 2 Q2 17 2 Q3 17 2 Q4 17 1 Jan-20 Mar-20 Q1 19 Q2 19 Q1 20 Jun-20 Very confident Fairly confident Not very confident Not at all confident QH1b. And how confident do you feel about the business outlook for the intermediary sector of the mortgage industry? Base: All respondents (200)

Confidence in outlook for their own business Intermediaries continued to feel most confident about the outlook for their own business in Q2. Although the majority of intermediaries remained confident in their own business across the period, fewer were feeling very confident . H1 20 by month 22 36 39 41 51 53 54 55 55 57 58 59 59 60 60 61 61 64 64 64 67 68 75 63 53 54 55 42 45 42 40 41 38 38 41 43 36 39 36 37 34 35 33 32 31 21 9 5 9 1 Jun-20 4 2 Q1 20 7 4 Q2 19 2 1 Q1 16 4 Q4 18 4 Feb-20 4 May-20 2 1 Q1 19 3 Q3 18 3 Q3 19 3 Q2 17 2 Q3 17 2 Q4 19 1 Q2 16 1 Q3 16 1 Q4 16 1 Q1 17 1 Q4 17 1 Q1 18 1 Q2 18 Jan-20 Mar-20 Q2 20 Very confident Fairly confident Not very confident Not at all confident QH1c. And how confident do you feel about the business outlook for your own firm? Base: All respondents (200)

Reasons for felt level of confidence in ones own business Intermediaries confidence in their own business was boosted by the perceived strength of their business, coupled with reports of higher demand as lockdown restrictions were lifted. However some were still left feeling uncertain about the future, and were nervous about how lenders reacted. Reasons for feeling more confident Reasons for feeling less confident Lenders less willing to lend Lenders have pulled out products or tightened their requirements. It is more difficult to find mortgages for clients with complex needs (e.g. self-employed, furloughed) 1 Qualities of the business Well established business, good client base, get a lot of repeat business and referrals, have a good reputation, don t just rely on mortgages 1 Uncertainty There is still a lot of uncertainty in the future, it could take a long time to recover, not sure how the market will respond 2 Lockdown restrictions eased Backlog of customers to deal with as restrictions are lifted, generally busier again, demand picking up 2 Physical lockdown Still come restrictions in place making it harder to do work/ valuations/ get things moving 3 Demand for intermediaries Customers have more complex needs (credit/ income issues) so will turn to intermediaries for support, more uncertainty in the market means that they need help 3 I think the brokers in this market will thrive because people will now have credit issues and there will be a lot more variables. I'm also and estate agent and we opened back up yesterday and will are getting a lot of phone calls for new business. (Very confident) Most lenders have changed their criteria of lending the past 3 months, withdrawing essential products needed for the mortgage market. They seem unable to cope in crisis. (Not very confident)

Business flow

Average number of DIPs in last 3 months The average number of DIPs that an intermediary dealt with dropped again in Q2, down from 28 DIPS in Q4 19 to 17 in Q2 20. Q2 2018: 27 Q3 2018: 27 Q4 2018: 28 Q1 2019: 26 Q2 2019: 27 Q3 2019: 28 Q4 2019: 28 Q1 2020: 24 Q2 2020: 17 32 31 30 30 30 29 29 27 27 27 27 27 26 26 26 26 26 26 26 25 24 24 22 20 17 17 n/a Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May June QHX1. In the last 3 months, approximately how many DIPs have you dealt with personally? Base: All Q2 respondents (200)

Average number of DIPs By business The average number of DIPs handled dropped across the board in Q2. The sharpest declines were seen among smaller firms (by sales decile) and directly authorised firms. Q1 2020 Q2 2020 24 (-7) 17 Directly authorised Appointed representative 24 (-10) 24 (-4) 14 20 1-2 (sales decile) 3-5 (sales decile) 6-8 (sales decile) 9-10 (sales decile) 30 (-6) 30 (-9) 27 (-15) n/a 24 21 12 N/A Base size too small First time buyer* 15 23 (-8) 22 (-3) 25 (-6) 25 (-7) 23 (-6) Mover* 19 19 18 17 Remortgage* Buy to let** Other specialist*** North 15 27 (-12) 30 (-7) 23 (-8) Midlands South 23 15 * At least 4 out of every 10 residential mortgages placed ** At least 2 out of 10 mortgaged placed *** Any mortgages placed QHX1. In the last 3 months, approximately how many DIPs have you dealt with personally? Base: All Q2 respondents (200)

DIPs resulting in a DIP accept (%) There was a small drop in the proportion of DIPs resulting in a DIP accept in Q2. Q2 2018: 84 Q3 2018: 84 Q4 2018: 84 Q1 2019: 86 Q2 2019: 85 Q3 2019: 83 Q4 2019: 85 Q1 2020: 85 Q2 2020: 82 87 87 87 86 86 86 86 86 86 85 85 85 85 84 84 84 84 83 83 83 83 83 83 82 81 81 n/a Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun QHX2. In the last 3 months, what proportion of these DIPs have resulted in a DIP accept? Base: All Q2 respondents (200)

DIPs resulting in a DIP accept (%) By business Conversion from DIP to DIP accept saw the biggest decline among intermediaries dealing with first time buyer cases. Q1 2020 Q2 2020 85 (-3) 82 Directly authorised Appointed representative 85 (-5) 85 (-2) 80 83 84 (-2) 85 (-1) 85 (-1) n/a 1-2 (sales decile) 3-5 (sales decile) 6-8 (sales decile) 9-10 (sales decile) 82 84 84 N/A Base size too small 85 (-7) 87 (-6) 86 (-3) 84 (-3) 85 (-5) First time buyer* 78 Mover* 81 Remortgage* Buy to let** Other specialist*** 83 81 80 85 (-2) 77 (+1) 86 (-3) North 83 Midlands South 78 83 * At least 4 out of every 10 residential mortgages placed ** At least 2 out of 10 mortgaged placed *** Any mortgages placed QHX2. In the last 3 months, what proportion of these DIPs have resulted in a DIP accept? Base: All Q2 respondents (200)

DIP accepts resulting in a full application (%) The average proportion of DIP accepts resulting in a full application fell to 75% in Q2, down from 85% at the end of 2019. Q2 2018: 84 Q3 2018: 80 Q4 2018: 82 Q1 2019: 84 Q2 2019: 83 Q3 2019: 80 Q4 2019: 85 Q1 2020: 81 Q2 2020: 75 86 85 85 84 84 84 84 84 83 83 82 82 82 82 82 81 81 81 81 80 80 80 78 78 75 74 n/a Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun QH3. In th3 last 3 months, what proportion of these DIP accepts have led to a full mortgage application? Base: All Q2 respondents (200)

DIP accepts resulting in a full application (%) By business Conversion from DIP accept to full application declined the most among larger firms (by sales decile), those dealing with specialist mortgage cases and those in the north. Q1 2020 Q2 2020 81 (-6) 75 Directly authorised Appointed representative 82 (-8) 81 (-6) 74 75 1-2 (sales decile) 3-5 (sales decile) 6-8 (sales decile) 9-10 (sales decile) 82 (-12) 84 (-2) 79 (-6) n/a 70 82 73 N/A Base size too small First time buyer* 77 (-5) 82 (-6) 84 (-10) 83 (-8) 84 (-11) 72 Mover* 76 Remortgage* Buy to let** Other specialist*** 74 75 73 84 (-11) 71 (+5) 81 (-7) North 73 Midlands South 77 74 * At least 4 out of every 10 residential mortgages placed ** At least 2 out of 10 mortgaged placed *** Any mortgages placed QH3. In th3 last 3 months, what proportion of these DIP accepts have led to a full mortgage application? Base: All Q2 respondents (200)

Full applications resulting in an offer (%) The proportion of full applications resulting in an offer continued to decrease in Q2. Previously around 9 in 10 full applications resulted in an offer, however this dropped to 76% in Q2. Q2 2018: 88 Q3 2018: 88 Q4 2018: 89 Q1 2019: 89 Q2 2019: 90 Q3 2019: 87 Q4 2019: 89 Q1 2020: 87 Q2 2020: 76 91 90 90 90 90 90 90 90 90 89 89 89 89 88 88 88 88 88 86 86 86 86 84 84 77 75 n/a Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun QH4. In the last 3 months, what proportion of your full applications have led to an offer? Base: All Q2 respondents (200)

Full applications resulting in an offer (%) By business Conversion from full application to offer decreased the most among smaller businesses (by sales decile), and intermediaries handling first time buyer mortgage cases. Q1 2020 Q2 2020 76 87 (-11) Directly authorised Appointed representative 86 (-13) 87 (-9) 73 78 1-2 (sales decile) 3-5 (sales decile) 6-8 (sales decile) 9-10 (sales decile) 88 (-15) 8 (-7) 86 (-8) n/a 73 81 78 N/A Base size too small 87 (-16) 87 (-11) 88 (-11) 86 (-10) 87 (-12) First time buyer* 71 Mover* 76 77 76 75 Remortgage* Buy to let** Other specialist*** 88 (-13) 85 (-5) 88 (-14) North 75 Midlands South 80 74 * At least 4 out of every 10 residential mortgages placed ** At least 2 out of 10 mortgaged placed *** Any mortgages placed QH4. In the last 3 months, what proportion of your full applications have led to an offer? Base: All Q2 respondents (200)

Offers resulting in a completion (%) Conversion from offer to completion saw the biggest drop off in Q2, down from 85% in Q4 19 to 59% in Q2 20. Q2 2018: 85 Q3 2018: 82 Q4 2018: 87 Q1 2019: 86 Q2 2019: 88 Q3 2019: 84 Q4 2019: 85 Q1 2020: 79 Q2 2020: 59 89 89 88 88 88 88 88 87 87 86 86 86 86 85 84 84 83 82 82 81 81 80 78 73 62 57 n/a Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun QH5. And in the last 3 months, what proportion of your client s mortgage offers have led to a completion? Base: All Q2 respondents (200)

Offers resulting in a completion (%) By business The conversion from offer to completion decreased the most among smaller businesses (by sales decile), those in the north and those dealing with first time buyer cases. Q1 2020 Q2 2020 79 (-20) 59 Directly authorised Appointed representative 82 (-24) 77 (-17) 58 60 78 (-14) 83 (-19) 77 (-28) n/a 1-2 (sales decile) 3-5 (sales decile) 6-8 (sales decile) 9-10 (sales decile) 64 64 49 N/A Base size too small 76 (-25) 74 (-13) 82 (-18) 78 (-17) 80 (-23) First time buyer* 51 Mover* 61 Remortgage* Buy to let** Other specialist*** 64 61 57 84 (-32) 77 (-14) 76 (-14) North 52 Midlands South 63 62 * At least 4 out of every 10 residential mortgages placed ** At least 2 out of 10 mortgaged placed *** Any mortgages placed QH5. And in the last 3 months, what proportion of your client s mortgage offers have led to a completion? Base: All Q2 respondents (200)

Conversion from DIP to completion In Q2 the overall conversion from DIP to completion dropped to 27%, down from 47% in Q1 20, and 55% in Q4 19. # clients Initial pool of DIPs 17 (average number of DIPs in last 3 months) Conversion of DIPs to DIP accepts: 82% (vs. 85% in Q1) 14 Pool of DIP accepts Conversion of DIP accepts to full applications: 75% (vs. 81% in Q1) Conversion of DIPs to completions: 27% (vs. 47% in Q1 and 55% in Q4) 11 Pool of full applications Conversion of full applications to offers: 76% (vs. 87% in Q1) 8 Pool of offers Conversion of offers to completions: 59% (vs. 79% in Q1) 5 Pool of completions QHX1. In the last 3 months, approximately how many DIPs have you dealt with personally? QHX2. In the last 3 months, what proportion of these DIPs have resulted in a DIP accept? QH3. In the last 3 months, what proportion of these DIP accepts have led to a full mortgage application? QH4. In the last 3 months, what proportion of your full applications have led to an offer? QH5. And in the last 3 months, what proportion of your client s mortgage offers have led to a completion? Base: All Q2 respondents (200)

Conversion from DIP to completion By business Conversion from DIP to completion decreased the most among firms in the north, directly authorised firms and those dealing with specialist mortgages. Q1 2020 47 (-20) Q2 2020 27 49 (-24) 46 (-17) Directly authorised Appointed representative 25 29 47 (-20) 52 (-17) 44 (-20) n/a 1-2 (sales decile) 3-5 (sales decile) 6-8 (sales decile) 9-10 (sales decile) 27 35 24 N/A Base size too small First time buyer* 43 (-23) 45 (-16) 52 (-22) 48 (-20) 50 (-25) 20 Mover* 29 30 28 Remortgage* Buy to let** Other specialist*** 25 North 53 (-29) 36 (-6) 46 (-18) 24 Midlands South 30 28 QHX1. In the last 3 months, approximately how many DIPs have you dealt with personally? QHX2. In the last 3 months, what proportion of these DIPs have resulted in a DIP accept? QH3. In the last 3 months, what proportion of these DIP accepts have led to a full mortgage application? QH4. In the last 3 months, what proportion of your full applications have led to an offer? QH5. And in the last 3 months, what proportion of your client s mortgage offers have led to a completion? Base: All Q2 respondents (200) * At least 4 out of every 10 residential mortgages placed ** At least 2 out of 10 mortgaged placed *** Any mortgages placed

Conversion from full application to completion In Q2, under half of all full applications resulted in a completion, a strong drop compared to the end of 2019 when three-quarters of all full applications resulted in a completion. # clients 11 Pool of full applications Conversion of full applications to offers: 76% (vs. 87% in Q1) Conversion of full applications to completions: 45% (vs. 68% in Q1 and76% in Q4) 8 Pool of offers Conversion of offers to completions: 59% (vs. 79% in Q1) 5 Pool of completions QHX1. In the last 3 months, approximately how many DIPs have you dealt with personally? QHX2. In the last 3 months, what proportion of these DIPs have resulted in a DIP accept? QH3. In the last 3 months, what proportion of these DIP accepts have led to a full mortgage application? QH4. In the last 3 months, what proportion of your full applications have led to an offer? QH5. And in the last 3 months, what proportion of your client s mortgage offers have led to a completion? Base: All Q2 respondents (200)

Conversion from full application to completion (%) Conversion from full application to completion fell across the first half of 2020, reaching a new low of 42% in June 2020. Q2 2018: 75 Q3 2018: 72 Q4 2018: 77 Q1 2019: 77 Q2 2019: 80 Q3 2019: 73 Q4 2019: 76 Q1 2020: 68 Q2 2020: 45 81 79 79 79 79 79 79 78 77 77 76 76 76 76 75 75 73 71 71 70 70 68 67 62 47 42 n/a Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May June QH4. In the last 3 months, what proportion of your full applications have led to an offer? QH5. And in the last 3 months, what proportion of your client s mortgage offers have led to a completion? Base: All Q2 respondents (200)

Conversion from full application to completion By business Conversion from full application to completion dropped the most among firms in the north, those dealing with first time buyer mortgages, smaller firms and directly authorised firms. Q1 2020 Q2 2020 68 (-23) 45 Directly authorised Appointed representative 70 (-28) 67 (-20) 42 47 68 (-21) 74 (-23) 66 (-28) n/a 1-2 (sales decile) 3-5 (sales decile) 6-8 (sales decile) 9-10 (sales decile) 47 51 38 N/A Base size too small 66 (-30) 64 (-18) 72 (-23) 68 (-22) 70 (-27) First time buyer* 36 Mover* 46 Remortgage* Buy to let** Other specialist*** 49 46 43 74 (-35) 65 (-15) 66 (-20) North 39 Midlands South 50 46 * At least 4 out of every 10 residential mortgages placed ** At least 2 out of 10 mortgaged placed *** Any mortgages placed QH4. In the last 3 months, what proportion of your full applications have led to an offer? QH5. And in the last 3 months, what proportion of your client s mortgage offers have led to a completion? Base: All Q2 respondents (200)

Any questions MARK LONG, DIRECTOR SAM BURTON, RESEARCH DIRECTOR +44 (0) 20 7400 1016 +44 (0) 20 7400 0396 +44 (0) 7966 454 958 Sam.Burton@bva-bdrc.com Mark.Long@bva-bdrc.com