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Braking point

Datamonitor predicts that mortgage lending will slow down by 10 per cent over the next three years. Is this a fair figure and, if so, what can lenders do to counteract the downturn?

Harris: No, I do not expect lending will slow by this amount although I do expect to see further consolidation in the building society sector.

Lenders can do plenty to ensure their business remains strong. Customer retention needs to become a priority as well as greater flexibility in products, more online processing to cut costs and expansion into new markets such as equity release, affordable homes, international mortgages and buy to let.

Hollingworth: It is always difficult to predict too far ahead but it is certain that this year’s lending is likely to be mark-edly down from last year, with the CML pointing to Feb-ruary’s figures being 18 per cent lower than the previous year. We all knew that the market could not safely continue to boom.To prosper, lenders will need to concentrate on two things – innovation and pri-cing. By continuing to innovate in product design, they may be able to help more people on to the ladder. In addition, aggressive pricing will be essential to ensure that they can take a bigger slice of a smaller cake.

Cornell: I am always sceptical about these figures which are touted out. They tend to grab headlines and then no one notices when the real figures emerge several years later that they are vastly different.

If Capital Economics were correct, the world would have ended by now. If the purchase market remains in the doldrums, then that will have an impact on lending but there is still massive scope in the remortgage market, especially with buy-to-let loans. To boost volumes, lenders can continue to innovate and look for new markets such as overseas and lifetime.

Is Norwich Union’s entry into the home-reversion market a surprise and will we see other big names follow suit?

Harris: No, it was not a surprise and yes, we expect other providers to follow. As reversion schemes are not regula- ted by the FSA, unlike equity-release mortgages, I expect a gradual shift back towards them. A decade ago, 99 per cent of equity release was reversion schemes but last year 99 per cent was traditional mortgage equity release. A balance needs to be found and we expect to see more reversions in due course, particularly as there is a greater understanding of these products.

Hollingworth: Norwich Union’s entry into the home-reversion market is to be welcomed and has been rumoured for several years. With the strong growth in lifetime mortgages,the current reversion offeringfrom NU may bemore about its own market position than seeking truly to grow volume reversion business. If any provider is seriously considering market entry then they will not wait for regulation to come through. Hopefully, those in the wings will be encouraged by NU’sboldness.

The schemehas some interesting tweaks in terms of its house price inflation guarantee and its inheritance protection guarantee, which will make others sit up and consider their own proposition. Perhaps the very best thing that NU bringsis big-name credibility to an important financial services sector.

Cornell: I was surprised to see Norwich Union enter this market but it was a welcome surprise. The home-reversion market has had a chequered history and has not had much good PR. Like lifetime mortgages, these are not for everyone but for certain types of borrowers they make good sense and canallow elderly homeowners access to the equity in their properties. I do not think that many other big lenders will follow suit yet. HBoS is still scarred by the adverse publicity that Bank of Scotland received over its shared appreciation mortgage.

To what extent is the acquisition of Mortgage Force by West Bromwich Building Society indicative as to how the nature of mortgage distribution is changing?

Harris: Smaller building societies will naturally be concerned about the whole issue of distribution but the purchase of Mortgage Force does not seem to be about this. Mortgage Force is an independent broking outfit and therefore can only distribute West Brom products if these are felt to be in the best interests of the client. I suspect that West Brom bought Mortgage Force because it believes it will complement its existing business.

Hollingworth: It is obviously not the first time that lenders have looked to diversify their distribution by acquiring brokers and Bradford & Bingley went as far as to try and become one.

In this sense, I do not think that we can point to this transaction as representing a major sea-change. However, it does illustrate that lenders recognise the important role that broking operations offer in terms of distribution and in order to harness that, it makes perfect sense for them to buy in.

The other reason that lenders may look to increase distribution via these means is because distribution of their own mortgages may be restric- ted as a result of the major clubs and networks trimming down their own panels of lenders from which they may have been excluded.

Cornell: I do not think that one purchase can be seen as indicative of what is happening with mortgage distribution. There are a couple of other examples but there are not many lenders who own their own distribution.

We do however have the scenario of Cartel which is trying to integrate vertically upwards and become a lender as well as broker. Clearly, West Brom saw Mortgage Force as a worthwhile acquisition. Rob Clifford insists that it will remain independent of the parent company.

Lender KFI or outsourced KFI – who is winning the war of credibility, effici- ency and accuracy?

Harris: Lender KFI, without a doubt. This is winning the war of credibility, etc, for one very good reason – the KFI is guaranteed if it comes from the company’s own website. Outsourced KFIs carry no such guarantee, so brokers cannot trust them and therefore why would they use them?

The sourcing systems have lost a lot of ground on this score and outsourced KFIs have to gain some credibility – and fast. They have to get the faith and trust back which has been lost. Some intermediaries have done their own.

Hollingworth: Sourcing systems represent a more straightforward broker solution for the production of KFIs in terms of a one-stop shop but can only work if the KFIs are accurate. There has been some criticism of the accuracy of sourcing systems but not all lenders have been squeaky clean. Thankfully, the situation has improved of late. Therefore, it is vital that sourcing systems continue to work hard on verification with lenders’ co-operation – after all it benefits everyone in the long run.

Cornell: I think that if you are looking at lender KFIs v sourcing system KFIs, then the undoubted winner is the lender KFI. There are few, if any, lenders which will guarantee the accuracy of a sourcing system KFI. Until this happens, sourcing systems will lack credibility even if the efficiency and accuracy exist.

There is another element in the market which a lot of people are not aware of – an “in-house” KFI. Hamptons and other brokers such as Savills, Chase de Vere, Cluttons, Pur- ely and recently Charcol use a CRM system called Pivotal to produce their KFIs.

Should all mortgage intermediary business be submitted online or should lenders continue to embrace different forms of conducting business?

Harris: For the time being, lenders need to offer brokers a choice of ways of doing business because the online systems are not yet reliable enough to replace other methods. However, I expect full online capability to be achieved within the next five years or so, as once these systems are reliable and fully proven it should be a quicker, cheaper and easier way of conducting business.

Hollingworth: Online business has definitely been a huge boost to all in the industry and, most important, to the borrowers. Processing times have been slashed and the days of mortgage applications being piled high in the corner of a lender’s office waiting to be keyed into its system are hopefully rapidly disappearing. Among those lenders already receiving online applications, a further enhancement would be developing a process flexible enough to take account of cases that fall outside criteria.

Many of the smaller lenders, however, do no yet have the facility for online applications, probably considering the cost of development is too high for the volume of lending they do. Some of the best deals come from the smaller lenders so, for consumers to continue enjoying these preferential rates, it is only appropriate to proceed with the paper application. In general, these smaller lenders are efficient at processing mortgage business and offer good customer service. An option they may look to pursue is electronic trading using a generic application form on Mortgage Brain.

Cornell: I do not think it is realistic for all business to be conducted online. Lenders should be free to choose what sort of proposition they offer. Some of the private banks and smaller lenders struggle to be able to find the resources to build an online mortgage operation.

That said, however, there are some clear advantages of online applications in terms of efficiency and cost, so lenders should encourage intermediaries to use these systems. They can offer differentiated proc fees, enhanced products, and faster service. BM can refuse to accept paper appli- cations but most lenders could only dream of doing something like that.

Should the FSA regulate estate agents after claims that estate agents often put pressure on clients to use in-house advisers?

Harris: No, the FSA should not regulate estate agents. They do need a regulatory structure but the FSA is not the answer. Estate agents need a softer regulatory approach. Regulation by the FSA would be unnecessarily onerous and hamper their business. However, any regulator should take issue with those agents who do pressurise clients to use in-house advisers.

Hollingworth: I am sure there are plenty more arguments for regulating estate agents than just the fact that they edge people towards their own mortgage adviser, although, anecdotally, this can be done in a pretty high-pressure fashion.

It is important that any non-regulated salesperson in an estate agent’s office does not cross the line in introducing a client to a regulated mortgage adviser of “arranging” or “making arrangements” for the customer to enter into a regulated mortgage contract. Probably the only group of people who would prefer estate agents not to be regulated are the estate agents themselves.

Cornell: Hamptons Mortgages is part of Hamptons International, an estate agency. I do think that regulation would help improve the image of estate agents as a whole and would help get rid of some of the bad apples and the terrible things that happen in the industry.

I am not sure the FSA would be the most suitable agency to do this as I think it is pretty busy looking after the financial services industry and getting to grips with the mortgage market. I think that self-regulation would be a good start.


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