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Stop moaning about Abbey and focus on serious stuff

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In a few years a book might be written titled ’How We All Got Through It - The Mortgage Industry 2007-2012’. Its contributors will make claims about how they survived but for me there were two life support machines.

First, Halifax’s decision to sustain its wonderful policy on product transfers. Second, the investment by Santander in Abbey for Intermediaries and the broker sector at large.

I hope the malcontents do not malign Santander too harshly for reducing its interest-only LTV via brokers to 50% from 75%. Their opprobrium might be better directed at the Mortgage Market Review and its deluded approach to social re-engineering.

“It’s all about prudence. It was prudence that saved enough lenders from oblivion in 2008 when those that had discarded it shut up shop”

It’s all about prudence. It was prudence that saved enough lenders from oblivion in 2008 when those that had discarded it shut up shop.

Barclays, Coventry Building Society and Nationwide are fine examples. Like Santander is doing, they took time out for housekeeping. Enhancing capital ratios is a price worth paying in the long run.

This decision will hurt - Abbey has been Mortgageforce’s biggest lender this past three years. But the energy spent criticising one lender would be more constructively used on the following:

  • Where appropriate, reviving the second charge market.
  • A re-education on which lenders can provide repayment mortgages into retirement.
  • And not least, the country’s £1.3bn protection gap.

Finally, I’d like to plead with other mainstream lenders not to lower their interest-only thresholds. A mild increase in pricing at the higher levels will be viewed as a triumph of commercialisation over cowardice.

Kevin Duffy

Managing director, Mortgageforce

Abbey’s arrogance on reasons for LTV cut is astounding

Following an email I received last week from Abbey regarding changes to its lending criteria I was gobsmacked at its arrogance.

It started with the following - “We constantly review our offering to ensure it best meets the needs of your clients”.

Abbey, please do not insult my intelligence by telling me that reducing the LTV for interest-only down to 50% and lowering the maximum number of applicants from four to two best meets the needs of my clients.

Neither my fellow director nor I can recall a client telling us how preposterous it was that a lender would have the audacity to take an application with four names on it, or indeed complaining that they didn’t want 65% LTV on interest-only and that the lender should cap them at 50% LTV.

These changes are for Abbey’s best needs not clients’. While I am on my high horse, it may want to contact its marketing department - the name Abbey for Intermediaries is beginning to wear thin.

Peter Stokes
Director, Davidson Deem


Greed and the bank bonus culture has bled our country dry

Simon Bucknell’s letter last week stating that the Royal Bank of Scotland chief executive Stephen Hester was entitled to his bonus would have been on the right track if he had said that it was ludicrous the way the press concentrated on him when there are lots of equally obscene payments around.

In Hester’s defence it has been stated that he has turned around a failing business when the share price has dropped so much. But at the risk of using the short-term thinking that I deplore, these people have lived by the sword of short-term share prices and should die by them.

I would love to see the reply to one of NatWest’s branch or business managers using a similar argument in demanding a bonus if their respective branch had failed to perform to the same degree. The culture is wrong.

When I was an administration manager for NatWest in the mid-1980s we received a notice about the introduction of performance-related pay.

I told the boss it would be a disaster for banking and how right I was. In just the same way as no amount of interest or commission makes up for the capital lost in bad lending, no amount of false prosperity that the culture of bonuses brought can make up for the 2007 crash.

Since 1980 both Margaret Thatcher and Tony Blair’s mates - the bankers, utility chiefs and private equity men - have looted this country.

Their great achievement was making the working man aspire to the same greed. Isn’t it strange that in the two periods in our history when income and wealth was most unequal, that we get crashes?

Nothing to do with the rich having bled the country dryand having sucked demand out of the bottom by paying their workers buttons.

The working man realises they’ve been conned so do the bare minimum.

FTSE directors get paid 1,200% more than they did in 1985 and still don’t want to pay more tax.

Please don’t give me the politics of envy rubbish - I envy no-one on earth. I pity people who are so spiritually bereft as to need so much money.

Des Platt
Mortgage and protection consultant, Hunter Mills


Plans to change way SMI is paid is more worrying than rate

Natalie Thomas’ story last week - ’Shelter backs CML’s call for SMI to be paid at individual mortgage rates’ - made for interesting reading. However, it demonstrates yet again how narrow the focus of some comments can be, in this case those by Campbell Robb, chief executive of Shelter, and the Council of Mortgage Lenders.

It is probably true that if support for mortgage interest was paid in line with the individual borrowers’ mortgages there would be saving in terms of the total amount of benefit paid to claimants - Shelter quotes £26m per annum.

Unfortunately this ignores the costs associated with paying the benefit, which would undoubtedly increase significantly if the mortgage-specific rate was adopted.

A mortgage-specific rate would introduce complexity and uncertainty as specific rates can change so the overall true cost of this benefit would actually increase.

What should be of more concern to Shelter and the CML is the government’s proposal to radically change the way SMI is paid and to introduce a new element with respect to claimants who receive SMI over a long period.

These proposals are set out in a government document, Support for Mortgage Interest - Informal Call for Evidence. Among the proposed changes are:

  • That SMI payments should fall into line with proposals for the Universal Credit which would see benefits being paid direct to claimants rather than to lenders which is the case currently. The government is keen that benefit claimants are encouraged to manage their own affairs as a first step to getting back to work.
  • In cases where SMI is paid over a long period, such as where there is little likelihood of the claimant returning to work, the government would take a charge over the property which will enable them to make a recovery of some or all of the interest when the claimant dies or sells the property.

The thinking here is that the claimant should not enjoy an increase in the value of the property arising during the period the state has been paying the mortgage interest.

Interestingly, paragraph seven of the executive summary in the document addresses the point raised by Shelter.

“We are seeking views on whether there is an alternative to the current method of calculating the standard interest rate,” it states. “Our guiding principle is that the rate must be fair to claimants and taxpayers, and be straightforward to administer for both government and mortgage providers.”

So it looks like whatever happens it will continue to be a flat rate.

Dennis A Hewitt


Businesses may find better deals than bridging if they look

It’s apparent that businesses need to access finance but does the banks’ cautious lending make businesses take what they can get?

The number of bridging loan providers has increased sharply - statistics suggest a 27% increase in the number of bridging loans taken out in the past 12 months. But is this necessarily good news?

By their nature bridging loans are more expensive and offer lower LTVs. The key feature of bridging loans is that there has to be a clear exit strategy in place. In other words, both the borrower and the lender needs to know exactly how the bridging loan will be repaid.

Interest rates of over 24% are not uncommon with bridging loans. If a loan is taken out, only to be renewed again and again it is an expensive way of arranging business finance.

On the other hand, bridging loans can be flexible and often there are fewer underwriting hoops to jump through.

Whether the market expansion is a function of demand for bridging finance or bridging is used because traditional providers apply restrictive underwriting criteria, we don’t know.

But what we do know is that there clearly is a market for this sort of finance. What businesses need to grasp is that if they assess all their finance options, they will realise there are still better deals on the market in respect of LTV ratios and interest rates.

Henry Ejdelbaum
ASC Finance for Business


Collective action is only way to take on Paymentshield

I was interested to read Mortgage Strategy’s story last week on the legal action being taken by D&D Consultants director David Nicholson against Paymentshield.

Paymentshield also reduced our trail commission fromover £100 a month to under £20. This is a large drop in our monthly cash flow, which was used to cover things such as postage, phone and broadband monthlyaccounts.

All the business we wrote through Paymentshield was on the drip, plus we continue to service the policyholders with it.

Perhaps you should invite collective action from all brokers in the same situation to get this reversed as we now urgently need this income stream to keep our business running.I look forward to reading your next issue to see if others share my view.

Jonathan Smith
Jonathan Smith & PartnersPrize may vary from picture

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