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Best Defence

Do you agree with BSA dir-ector general Adrian Coles that best-buy tables distort the mortgage market?

RC: No, unless you contend that consumers are oblivious to the difference between a headline rate and the overall cost of a deal. Best-buy tables can significantly inc-rease a lender&#39s market share. However, the typical price-sensitive borrower is smart enough to recognise when a best-buy table-topper is a wolf in sheep&#39s clothing.

I agree that they can have a disproportionate eff-ect on the market but do have a value and a place in it.

MU: Yes, they do. They only provide a snapshot and, given that a mortgage is a major, long-term commitment, picking a product just because it appears in best-buy tables is not an appropriate way to proceed. It is too easy for some lenders to price the lowest rate in the market without the borrower fully understanding the potential implications at the end of the product period.

RM: No. Best-buy tables tend to rank products by price and then features. A good mark-eting department can manipulate their product offering to ensure they app-ear in such tables. This may fool consumers. How-ever, intermediaries tend to be more streetwise, they will judge the best product for their client, taking into acc-ount service, criteria, reputation and above all the client&#39s needs.

After being forced to drop it because of the election, the Labour Party has inc-luded seller&#39s pack leg-islation in its manifesto. Should the Bill be revived?

RC: Yes but with the caveat that the entire process is now subject to an extensive ind-ustry consultation period to ensure that the apparent flaws are first eradicated or justified. The results of similar protocols operated in con-tinental Europe suggest that improved consumer prot-ection is minimal and the speed of the housebuying process is only marginally increased. Any acceleration of the process is to be welcomed but I have some anxiety about the appropriateness of the current piloted model.

MU: Anything that helps to improve the information available to purchasers and speeds up the housebuying and selling process is to be welcomed. I hope that the new Government will look at the legislation with this aim.

RM: No. The current house-buying process is not perfect but it has contributed to the UK having some of the highest levels of home-ownership in the world and at very low transaction costs.

There is no doubt that the process needs to be speeded up and I would certainly support the part of the Bill which looks to the internet to enable the conveyencing process, especially local searches. We believe the adoption of seller&#39s packs will lead to a fall in the supply of housing available to purchasers and will lead to substantially higher prices which would have a negative effect on the economy.

Should lenders such as Nationwide and Halifax have two mortgage rates or is this unfair to existing borrowers?

RC: Dual pricing of one sort or another has been a feature of the mortgage market for years, so, yes, Halifax and Nationwide should be free to price according to the dem-ands of the market, provided that borrowers are kept fully informed and are offered choice. Particularly in this age of transparency, caveat emptor should prevail and consumers should be trusted to do their research, compare and assess lenders on their various pricing policies, then make an informed choice.

MU: The key issue is to keep it simple for borrowers. The mortgage process is comp-licated enough without trying to confuse them. A single rate, priced at its lowest level practical, can be understood by all. Make more than one base rate available, add some vague criteria as to which rate applies to who (or make it available to all but you have to apply if and when we tell you about it!) and it is no wonder borrowers get confused.

RM: Reversion rates cannot be considered in isolation, they need to be seen in the context of the overall product offering, so it is difficult to give a definitive answer.

How sustainable are the ultra-low mortgage rates we are currently seeing? Will lenders eventually take a Nationwide-type approach?

RC: No, other lenders are most unlikely to emulate Nationwide&#39s exit from deep-discounted products for new customers. The UK mortgage market is one of the most vibrant and over-supplied in the world, such that acquisition of new business based upon loss-leading pricing is inevitable unless a cartel operates, which itself regulates the new business rates offered by its participants.

The same is true of the motor insurance market. Broadly speaking, you either acquire new business with loss-leading product or sim-ply fail to win market share.

MU: They will only be available if people are prepared to remain on the lender&#39s base rate after the special product period has ended and/or borrowers currently on the base rate remain there. These borrowers subsidise special deals.

Neither are likely to hap-pen – borrowers are bec-oming increasingly aware of the “deals” that are available and remortgaging is an opportunity for intermed-iaries. Therefore, it is inev-itable that the money some lenders put behind special deals will have to fall.

RM: We have already seen many lenders exit the twoyear, no overhang market. These products give away £2,000 over the initial period and only work profitably if borrowers stay on SVR for several years. Customers are not that naive and therefore lenders still active in this market will lose money and customers. Over a period of time, we will see the majority of lenders adopting a similar approach to Nationwide.

Research by IMLA shows that 75 per cent of IFAs think forthcoming FSA proposals will result in some advisers no longer selling mortgages. Should compliance monitoring be the responsibility of the FSA and MCCB rather than lenders?

RC: Yes. No intermediary relishes the prospect of 20 different lenders rifling through his filing cabinet and asking to proof-read his last 29 advertisements to audit compliance with the ultimate requirements of the FSA.

There ideally needs to be a single body which would deliver compliance monit-oring. MCCB is perhaps perfectly placed to fulfil this role but I am unsure whether this would be welcomed by len-ders, the FSA or indeed by MCCB – it would require a massive national resource, after all. I feel strongly that IMLA&#39s research is totally right – thousands of advisers have already exited the mortgage market and many more will now do so.

MU: Yes despite the level of increased administration intermediaries might face. Lenders are at “arms length” from intermediaries and it is impossible for lenders to undertake monitoring req-uirements. Further, such an arrangement would be with-out teeth if/when needed – there is no adequate sanction which a lender can introduce other than refusing to accept business from an intermediary.

RM: We are particularly concerned that if lenders are required to monitor inter-mediaries there will be con-siderable duplication of effort and significant cost implications that will ultimately fall on the consumer. It would be far more cost-effective for the FSA to regulate and monitor intermediaries, particularly as 80 per cent are already authorised by the FSA for the sales of investment products.

Are building society res-olutions essential to the concept of mutuality?

MU: The Yorkshire&#39s aim is to maximise long-term benefits for current and future members. It can only do this by listening to members and putting their interests at the heart of its decision-making. Resolutions are extremely blunt instruments and do not provide an effective basis for the day to day running of a major financial institution.

Instead, the Yorkshire provides a number of ways in which a member can have his or her say at any time. These include a members panel, a members suggestion scheme and member roadshows. Ultimately, if members do not believe that the board is directing the society properly, they have the chance to vote directors out of office every three years.

RM: Yes. Mutuals by definition are owned by their members. Members therefore have every right to exercise their ownership through proposing and voting on resolutions. Mutuals who res-trict this right are open to the accusation of being run for the benefit of staff.

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