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&#39There may be trouble ahead&#39

Charcol senior technical director Ray Boulger wants the FSA to decide as soon as possible which mortgage networks it plans to authorise to ensure that brokers have the widest choice over the best set-up for them to join.

Speaking to Money Marketing about the issues facing the mortgage industry in advance of regulation at the end of October, Boulger warns that unless the FSA sends minded to authorise letters to all networks at the same time, some networks would be placed at an unfair advantage when attracting members.

There are currently about 50 network propositions which have applied for authorisation but many in the industry, including Boulger, do not believe they will all be successful in their bids.

He predicts trouble ahead for brokers and networks going down the authorised representative route as MTA letters are being sent to small brokers before networks.

Boulger raises concerns about transactions starting now, especially for new-build, but not completing until October. If firms are not authorised, then it is possible that some mortgage applications would not be completed and this would present the FSA with an “interesting challenge”.

He says: “Do they say to lenders &#39sorry you can&#39t complete&#39, which would cause chaos in the property market, or do they actually give them a concession? I suspect they will probably have to take the latter route.”

Boulger says the regulation of home-reversion schemes would take three years, with current demands on Parliamentary time and the likelihood of a general election next year.

Eighty-seven per cent of respondents to the consultation were in favour of regulation and Boulger suggests it is more likely that some small firms, which will struggle with the cost of preparing for regulation, might be against it.

He says voluntary regulation of home-reversion schemes by Ship would be “excellent news” and would set the scene for the FSA although it could be difficult to implement.

Boulger says he expects to see more companies coming into the lifetime mortgage market and more developments but not during the next six to nine months as firms spend time preparing for regulation.

Commenting on Nationwide executive director Stuart Bernau&#39s comments at the Building Societies&#39 Association conference recently about equ-ity release possibly being the industry&#39s next misselling scandal, Boulger says Nationwide has used lack of regulation as an excuse for not entering the equity release market but he says the market needs more entries from big lenders for it to expand.

Boulger endorses lenders increasing rates to reduce demand for certain products to restore service levels.

He says: “Where lenders have particularly competitive products, they are more sensitive to service pressures and how it has improved in the last few years is that more lenders are reacting to that sensibly by pulling products to tail off demand.”

He says one of the key advantages that a broker can offer to a client is to look at the whole aspect of a lender&#39s proposition and choose the right combination of lender and product and not focus on price alone.

Looking at Alliance & Leicester&#39s recent decision to focus only on bigger brokers, Boulger predicts that more would take this route because of concerns that dealing with smaller brokers could lead them more open to compensation claims. But he says as long as mortgage clubs continue to exist, small brokers would still be accessed by the majority of lenders.

Turning to the buy-to-let market, Boulger says he thinks many short-term investors may have already left the market or be targeting properties out of London, saying first-time buyers are being crowded out of the market by BTL investors.

He says the Government&#39s decision to allow residential property and BTL to sit within Sipp wrappers is the first step towards bringing BTL under regulation.

Finally, Boulger says it would take a strong trigger for inflation and interest rates to increase substantially but feels more nervous about this than he did a month ago.

He says: “It would take a strong trigger for prices to fall nationally and interest rates would need to reach 6 per cent before prices fall and I cannot see that happening. I think the interest rate will be 5 per cent by the end of the year and will go up to 5.25 per cent in a year&#39s time.”


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