Is there a future for the mortgage code or do you think the mortgage market is holding off for the FSA to regulate the market directly?
JM: I do not believe the mortgage market lenders or intermediaries are waiting for the FSA to regulate directly. The MCCB is an effective regulator creating higher standards in the mortgage industry. You have to bear in mind that the sponsor of the code is still the CML and the code has not been updated since January 1999, so the implementation by MCCB of the fit and proper requirements coupled with the many compliance visits are further evidence no one can afford to wait around.
MB: Yes. A form of mortgage code must remain – if nothing else then to serve as an indicator of the level of service a consumer can expect to rec eive from the introducer and lender. The real issue is who will be overseeing the regulatory regime. Speculation has been rife for several months that a major, major lender is on the verge of withdrawing from the mortgage code in preference for direct regulation by the FSA.
AY: I think there is a future for the mortgage code. With all the good work done over the past couple of years it would seem senseless to thr ow it all away. As the FSA will not regulate mortgage advice, I would like the industry to continue to develop “self-regulation” of mortgage advice and further develop the role of the mortgage board to overview this process.
In light of the latest developments in the attitude of Gov ernment towards the provision of advice and the mortgage sales process, is there a future for mortgage brokers?
JM: Yes! In view of clients' changing lifestyles, coupled with the vast array of mortgage and life products, the consumer needs specialist mortgage advisers to assist in the dissemination of information, regardless of whe-ther advice or information is to be provided.
MB: Definitely. It is a mistake not to regulate “selling and advice” but this will have to change over the longer term. With around 40,000 registered intermediaries under the code, it is not yet clear how lenders are expected to be responsible for them. Fifty per cent plus of all mortgage business is “introduced”. The 40,000 figure will inevitably fall with perhaps those brokers who only do mortgages occasionally opting out of the formal registration process and simply acting as “introducers” to other registered intermediaries.
AY: Of course there is. Just because the Government did not feel the need to regulate mortgage advice under the FSA does not mean that consumers no longer have the need for independent mortgage advice. One of the main drivers behind the Govern ment's decision was, in fact, the Treasury's research sho wed no evidence of consumer detriment as a result of the mortgage advice given. So mortgage brokers, who are currently responsible for aro und 50 per cent of the UK's mortgage market, are doing a pretty good job already and the need for good, impartial advice has never been greater.
Given the present climate for remortgaging, how long do you see the average customer staying with their original pro vider, what could lenders do to engender customer loyalty?
JM: The whole mortgage industry will at some stage in the near future have to tackle this issue. When you consider the vast difference between gross and net lending, no lender can afford to keep buying in new business while the same or more is going out the back door. Certain mortgage products, such as flexible, base-rate trackers, equity release and buy to let, are expected to remain with the lender for a reasonable period of time. That said, at least 50 per cent of current mortgage balances are still on a SVR. This means existing borrowers are currently subsidising new borrowers.
As fewer and fewer borrowers going forward will have no redemption penalties, I see lenders providing a combination either of their “best of best” products and/or an additional remuneration to the original introducer commensurate or better than the proc fee which could be obt ained for remortgaging, bearing in mind that many products have a fee-free element which would be a cost saving to the lender.
MB: The average lifespan of a mortgage will continue to fall. With extended lock-ins on their way out, the average lifespan will gravitate towards the length of the “offer” – two-year discount = two years; three-year fix = three years and so on. Mortgages are now virtually a commodity, not quite on a par with, say, credit cards, being lengthier, more expensive and more fiddly to change but not that far off.
Fortunately, mortgage len ders can still rely on a significant amount of apathy and ignorance to sustain “standard variable rate” syndrome. Customer loyalty? Welcome to the new millennium.
AY: This is a difficult one to answer. If interest rates rem ain around the levels they are today and the special discounts and fixes continue to be offered, then I believe the current trend of lender-hopping will continue – and who can blame consumers for shopping around for a better deal? If rates fall by another 1 to 2 per cent, then the margin to offer attractive “teaser” rates will diminish, enabling the lenders that look after their customers to improve their retention rates.
In any event, I still believe lenders could do more to improve their customer retention. Why wait for a request for a redemption statement before offering the client an alternative better deal? More lenders should be more proactive in looking after their clients at the end of a fixed or discount period.
Do you think vendor packs will mean mortgages will have to be pre-agreed in order to speed up the housebuying process?
JM: There are still a number of issues to be resolved reg arding the implementation of vendor packs in 2003. That said, new and existing borrowers are likely to be credit-rated well in advance of them purchasing property, which would speed up the system. This could have more of an impact on the points raised in question two.
MB: Fortunately, this is something that none of us will have to worry about. Vendor packs in their current format will disappear as soon as the misadvised and misguided politician responsible for it moves on to to a new brief – which should not be that long.
AY: No. I do not think so, although some lenders may decide to introduce “mortgage reservation certificates, which amount to the same thing, as a marketing ploy.
A properly packaged mortgage application with supporting evidence of income and existing mortgage payments can now be underwritten with a decision made almost immediately. This will not delay the housebuying process. Fur thermore, lenders would not be able to reserve funds indefinitely on a special fixed or capped rate.
Fewer and fewer lenders are insisting on life insurance to cover mortgages. Could this prove to be the misadvising problem of the future?
JM: If, by insisting, you mean life cover is not a condition of the loan and does not appear on the formal offer of loan,I can accept that but do not agree with it. Bear in mind that the code requires a full explanation of all the repayment types coupled to the relevant insurances to complement the mortgage.
All existing borrowers are reminded by their lender on an annual basis when sending out the mortgage statement that it is the borrower's res ponsibility to keep up all the payments on any life insurance, thus trying to prevent any misadvising scandal.
Likewise, all intermediaries are doing the same when issuing their product information to protect themselves under the code.
MB: Life insurance is a subset of the wider issue of the most appropriate repayment veh icle alongside the mortgage – and, of course, the best placed to offer such advice is the mortgage intermediary.
There is no evidence to suggest that a significant proportion of the population is walking around without adequate life cover for their mortgage. There are other str onger candidates for the next misadvising scandal.
AY: I do not believe so. Alth ough fewer lenders insist on life insurance to cover mortgages, I have not seen any evidence to show that fewer life insurance policies are being sold. They are simply just not assigned to the lender anymore. Under the mortgage code, intermediaries have to discuss the need for all types of protection alongside mortgages and, as far as I am aware, sufficient life insurance for mortgage protection is always recommended to clients. If this were not the case, then I, too, would be extremely concerned.
Do you think that IFAs are remunerated adequately for selling mortgages given the time inv olved in processing applications?
JM: Yes and no – as I have already commented in question three. As the process stands, an intermediary needs two to three hours, depending on the type of mortgage, etc, and sometimes two or more meetings are req uired.
Remuneration will depend on the longevity of the loan, price and how it was trans acted – electronically or paper-based. I am sure that once the consultation period with the FSA is finalised as to the compliant management of the advisers, etc, then the remuneration issue will be much clearer.
MB: Yes and no. The market is polarised. At one extreme, the sub-prime markets pays fees which promote mortgage misselling (which is a lot more widespread than most believe). On a £100k loan £3,000 is easy to find. The specialist sector is probably about right – for a self-cert £100k loan £500 is the benchmark but the mainstream market is completely screwed up.
Typical fees are £150 to £200 -clearly not enough but mainstream lenders are actually losing money on most of their new offerings because the market is so rate led; and there are too many lenders chasing not enough business. Classic chicken and egg – what comes first – raising procuration fees or raising rates?
AY: Mortgage fees have tended to increase over the past year or so, and we have also seen a switch to paying a percentage of the loan – rather than a flat fee. The current level of fees is, I believe, now close to the level which seems fair reward for the time and effort.
Remember also, IFAs look to ensure that customers are adequately protected for their mortgage, so there is inev itably the opportunity to earn additional commission for the sale of life insurance, critical illness, PHI or redundancy insurance.