While the FSA’s mortgage market review is not exactly a thrilling read, I must confess I found myself pleasantly surprised by most of the proposals in its 550 pages. Despite a frosty reception from many in the industry, I really cannot see any threat to intermediaries from the MMR. In fact, I believe it will go some way to strengthening our position in the marketplace.
First, the FSA has decided that all mortgages must be sold on an advised basis, with the exception of mortgage professionals and high-net-worth clients. This is a profound change for most lenders and a necessary one too. For years, they have been able to sell products without issuing advice and were therefore unaccountable when customers made inappropriate choices. Furthermore, the majority of these clients believed that they had in fact been given professional advice by the lender - a worrying finding indeed from the FSA’s own survey.
Now we are all bound by the same rules and for those of us who have always believed in the advised process, we have a clear advantage. Our qualified brokers are highly trained and we are well versed in the regulatory constraints. Lenders on the other hand will need to totally change their business or let mortgage intermediaries do the leg work for them and pay a proc fee. I believe that most will choose the latter.
Second, the FSA wants lenders to take responsibility for ensuring that a client’s income is appropriate for the loan they are taking out. Once again, this is standard practice for any responsible intermediary but a major change for lenders. Will they choose to take on this burden themselves when brokers are so well equipped to supply fully packaged, income checked and proved cases? Using brokerages will save lenders administration time and money.
Third, the MMR has underlined the fact that mortgages will become harder to place. This means mortgage specialists will be needed more than ever as clients seek our services to secure their borrowings. Not so long ago, there were over 30,000 mortgage brokers in our industry - that figure is now approaching the 7,000 mark, yet we still have 11 million borrowers. The lack of competition at a time of peak demand for advice can only be good news for brokers right now. Quality rather than quantity when it comes to business acquisition is paramount. Targeting placeable, ethical and saleable cases is vital so that we spend time servicing clients rather than wasting it on non-placeable applications.
Finally, many customers who have opted for the simplicity of sticking to their existing lender may be forced to look elsewhere if they do not meet the transition arrangements criteria. The lender will be required to carry out new affordability checks and potentially advise a different scheme. This will push more clients into the marketplace.
All in all, the MMR is something to be embraced by all of us in the industry. We are best placed to take full advantage of the newly even playing field. I doubt the lenders will even want to take us on but if they do -let the games begin.
Dominik Lipnicki is director of Your Mortgage Decisions