What impact will the cut in the Bank of England base rate from 4 per cent to 3.75 per cent have on the housing market?
Saxton: The housing market is underpinned by very strong fundamentals – high employment levels, very good affordability and low interest rates. These strong pillars are unaffected by the decision to cut interest rates and the outlook remains very favourable.
Davies: By itself, the 0.25 per cent base rate reduction, together with the associated reduction in longer-term fixed and capped interest rates, will have only a modest impact. It will smooth the decline in house prices, enabling the housing market to return more gradually to trend average house price growth. However, forward money markets discount a further base rate reduction and the distinct possibility of an additional reduction in base rates to 3.25 per cent in the summer.
If base rates were to be reduced to 3.25 per cent or 3 per cent, accompanied by further weakness in equity markets, it is conceivable that more people would turn to the housing market as a long-term investment vehicle. This would provide new impetus to the housing market but at the risk of increasing average house prices in some areas to unsustainable levels.
Underhill: On its own, not a lot. Interest rates have already brought mortgage payments to very low levels and a cut of 0.25 per cent is therefore unlikely to change the position. It is the general economic position and events in the wider world that will have more significant impact.
Will the name change from the National Association of Mortgage Brokers to the Association of Mortgage Intermediaries and financial support from the CML help the trade body attract more members and give it stronger negotiating power with the FSA?
Saxton: Naturally, support from the UK lending industry's representative body will lend the new Association of Mortgage Intermediaries an extra level of credibility. It is expected to be a relationship which can work both ways though, the AMI will be able to draw upon the resources of the CML and contribute to the wider debates facing the UK lending industry.
Davies: Namba would be the first to admit that there is a little historical baggage attached to the name and the new name will distance it from those early problems. It is a bit of a chicken and egg situation. The AMI would need to be able to claim a place at the FSA table and some negotiating success as the catalyst for increased membership and intermediary industry penetration. Susan de Mont, of the FSA, when speaking at a 2002 Compliance Institute seminar hosted by Bristol & West, confirmed that she had a need to find a voice speaking on behalf of mortgage intermediaries if the consultation on CP146 was to be truly representative of the whole industry.
It was not clear to Susan where that voice lay, as individual mortgage intermediary responses were somewhat thin on the ground, compared with lender or investment intermediary responses. Perhaps the AMI should concentrate its energy, resources and the undoubted knowledge within the steering group on consultation with and responses to the FSA and build a membership campaign on the place at the regulatory table it will win for itself.
Underhill: A name change on its own will not be what makes the difference. It depends on whether there is a change in the substance of the association's offering and on how vocal it is going to be in putting forward the views of the intermediary. Increased financial support, however, ought to assist in achieving this.
Do you expect more building societies to follow the likes of Yorkshire, with its new Accord brand, and Britannia, with its relaunch of Platform, in setting up intermediary divisions and is this trend good for brokers and clients?
Saxton: It is a trend which has been in evidence for some time now. Bespoke brands with a distinct offering aimed at serving the intermediary division have fared very well, as has our own specialist intermediary lender BM Solutions. A clear proposition for brokers will, inevitably, have a positive knock-on effect for how quickly they can place business and, in turn, the service they can offer their clients.
Davies: I believe the trend to separate mortgage “manufacturing” from sales and distribution will continue. As customers become more discerning and demanding the ability to offer a more extensive range of mortgage products from a variety of suppliers would appear to offer customers a wider choice.
I believe this will take the form of a limited panel, with service and fulfilment ranking alongside price and headline rates. Mortgage “manufacturers” will seek to compete with national intermediary chains which can and do offer a huge range of mortgage products, including exclusive arrangements with preferred suppliers, which appear to allow the advisers a better chance of meeting their clients requirements.
This will add to the competitive edge of the sales and distribution arm but it could mean that the preferential treatment of customers of both the manufacturing and distribution arms of the organisation will cease to exist but nevertheless it appears to be a trend that is set to continue. It will be interesting to see how the final version of CP146 and its impact on polarisation affects this trend.
Underhill: Possibly, since the direct and intermediary markets do require a different approach and trying to handle both markets under the same brand can lead to difficulties in putting across a consistent message and getting the right product/price/service mix. Intermediaries and their clients benefit since the operation is dedicated to their needs and can listen more closely to ensure requirements are met.
Do you think GE Consumer Finance will retain both the igroup and First National brands following the recent acquisition of the latter from Abbey National?
Saxton: Both igroup and First National are well known names in their own right. Without knowing the specifics of the deal, however, it is difficult to comment on the approach that will be taken.
Davies: Yes, in the short term. First National and igroup are both, principally, intermediary brands and there is a great deal of brand loyalty in the intermediary market. However, in the long term, it would make economic sense for GE to gradually reposition and merge the brands, perhaps retaining one of the brands purely for specialist markets such as non-status lending.
Underhill: This is a decision for GE. It is impossible to answer, sitting on the outside without knowing the reasons for purchase and the future strategy.
Should the MCCB name and shame firms it strikes from its register for failing to have professional indemnity insurance in place?
Saxton: Where individuals or, indeed, groups are not following the spirit of any current code of practice to which they subscribe or the forthcoming regulatory regime it is important that this should be highlighted to anyone who may have a compliance or regulatory interest of their own to consider.
Davies: One of the strongest sanctions that the Banking Code Standards Board has used in the past is the potential for negative PR arising from the publication of names of members who breach its code. The BCSB does this through press releases and by naming offending members in the board's annual report. We would strongly support a similar approach by the MCCB in respect of any code breach and not just PII.
As lenders and mortgage code subscribers who do a significant amount of business with intermediaries, we would like to see the MCCB adopt a higher profile and a more public role in policing the code. Naming and shaming would be a public manifestation of that role.
Bristol & West has expressed its concern to the MCCB recently over a trend for borrowers introduced to it by intermediaries to turn to us for assistance with complaints against the interme-diary as they have not received a satisfactory response from the intermediary's own compliance officer and they are unclear as to the role of the MCCB. The MCCB missed an opportunity to flex its muscles over the Century Mortgages' affair in that it took the Consumers' Association to name and shame and the DTI to close down a company which was clearly not just breaching but which was also openly flouting the mortgage code.
Underhill: Yes. The consumer protection issue is too strong to do otherwise.
With lender Mortgage Express offering commercial buy-to-let loans and broker club Mortgage Intelligence setting up a commercial lending panel, do you think more intermediaries will move into this sector?
Saxton: This is probably a natural progression for many brokers seeking to evolve their businesses. There is a natural cross-over between advising clients on their personal financial affairs and helping the same clients to man- age their business interests.
Davies: The commercial lending sector has long been thought of as a black art and practised only by those who understand its mysterious ways. However, the smaller commercial loan market is growing fast and right now is not regulated.
The products are less commoditised and offer an opportunity to price for risk rather than a one size fits all approach.
I can see more residential mortgage brokers becoming involved in smaller commercial loans as it is an opportunity to use their skill and experience in guiding and advising their clients whilst offering a profitable income stream to them without any dependency on add on sales of protection products.
Underhill: Not to any great degree. Extension from the primary to the secondary mortgage market was inevitable, given the economic position and the margins involved. The commercial market is a much bigger step and requires a further level of experience.
Mike Davies, head of compliance,Bristol & West
Mark Underhill, commercial director of Accord Mortgages, Yorkshire Building Society
Jack Saxton, head of intermediary market development, Halifax