The Effect of Mortgage Brokers on Banks’ Business Models

Abstract

We study the effects intermediaries have on the UK mortgage market by exploiting the strong increase in broker intermediation between 2013 and 2020. Our findings indicate that this rise coincided with more households choosing mortgages with a short fixed term, due to brokers steering households towards these mortgages to increase fees from repeat business. Increased broker intermediation also enabled smaller lenders to reach more customers by geographically diversifying their mortgage portfolios, which gave smaller lenders the opportunity to specialise their mortgage portfolios, concentrating on long fixed-term and high LTV mortgages.

Keywords: Mortgages, brokers, banks, household finances, portfolio diversification

JEL Classification: D43, G21, G28