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Chilton on Mortgages

Topically, I should be reviewing the first six months of FSA regulation which passed over the bank holiday. Instead, I am going to focus on the cost impact of the Victorian approach that the majority of lenders are burdening the industry with, perhaps appropriate at a time when MG Rover collapses due to years of failing to move with the times.

The biggest concern in the industry six months ago was the additional cost burden that regulation would bring. However, much more concerning from the intermediaries’ point of view is the gradual transfer of administrative load and cost from lenders towards intermediaries. In the world of fully credit-approved agreements, the process should become much simpler.

The market, however, is moving in a contrary direction. Our statistics show that the average time to offer from submission varies from under 10 days to more than 45 days. The majority of lenders, while restricting packaging and the ability for intermediaries to augment their income flow, are using fast-track underwriting to get intermediaries to soft-package applications. The money-laundering requirements that are being passed down to intermediaries by the majority of lenders only exacerbate this problem.

We therefore reach the situation where, even at the top scale, most lenders’ procuration fees are, and have been for a long time, inadequate for the distribution costs alone, without even costing in this additional administrative burden.

This is not just a moan, the intermediary channel is far cheaper to distribute through than branch-based business. Lenders are now outsourcing many administration roles to intermediaries without paying for it or streamlining their back office to cope with it. For fast-track business where a soft package is established, there is no excuse for a lender being unable to issue an offer within seven days. In failing to wake up to this situation, lenders are bearing unnecessary, inefficient administration costs and are using intermediaries as a free outsourcing role.

If we have a case in administration for 21 days – a reasonable remortgage expectation with a seven-day offer turn-around and 14-days post-offer completion cycle, rather than the current norm of two months plus, we could run our administration units at more than 150 per cent better cost levels than the lenders make available to us. Unless lenders are prepared to pay for this administrative cost burden, they will find intermediaries using the MCOB as an excuse not to do business with them. However cheap the deal is, if you cannot complete it in a reasonable time it is not good advice.

I am at the early stage of an initiative to get this issue high on lenders’ agendas. Procuration fees should be increased but, more important, lenders should recognise our administrative input and pay for this outsourcing service.

Those who embrace the future of an electronic transacting market are keen to embrace the concept. With them, our arguments appear to have traction. But the majority are buried in an MG Rover mentality which says it is OK the way that we are doing it today. They are the ones that will be left to fire-sale their mortgages, just like MG Rover dealers. By that time, they will probably have lost the copyright to their brands as consolidation continues to prey on underperformers.

Mark Chilton is chief executive of Purely Mortgages


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