View more on these topics

Churning curve

Guy Anker asks whether churning is threatening the mortgage market

Premier Mortgage Service managing director John Malone last week claimed that churning is as big a problem in the mortgage market as it is in the long-term savings market.

He said a number of lenders had stopped doing business with certain brokers they identified as deliberately remortgaging clients – often after only nine or 10 months into a deal – for the sake of earning extra commission rather than doing what is best for the client, although he does not reveal any names.

The issue has been hotly debated in the pensions arena in recent weeks, most notably when FSA chairman Sir Callum McCarthy claimed last month that the financial services business model is failing because of excessive churning caused by the lure of commission.

Many commentators express the same sentiments as Malone, saying that the trend towards short-term mortgage deals that encourage switching is causing friction between lenders and brokers.

Others, however, dismiss the issue as irrelevant, particularly with the advent of retention schemes that help prevent churn.

Malone says: “Some brokers will only support products without redemption fees so they can churn. Some of it is being done for periods as short as nine or 10 months, and it mainly applies to big ticket lines that often involve London brokers.

“I know some lenders have stopped doing business with those brokers. Some advisers may say it is justified, but you can’t keep using lenders as a dumping ground. The FSA is looking at it, saying, if you keep churning, you could have a loan that is larger than you started with that is still being paid into your retirement.”

Money Marketing has yet to uncover firm evidence to support Malone’s claims that lenders are not doing business with some brokers, despite contacting many of the large lenders, although it is unlikely that any would publicly admit to such a practice, while the brokers affected are hardly likely to confess either.

Alliance & Leicester head of intermediary mortgages Mehrdad Yousefi says: “The market needs to get away from two-year fixes. It creates tension between lenders and brokers.

“In other markets the degree of competition is less than the mortgage market – after food retail it is the most competitive business sector in the UK. That means the life cycle of the mortgage is two to three years whereas it used to be about seven years.”

Abbey spokesman Joe Wiggins adds: “We are not rejecting business from people that churn – it is difficult to identify that sort of activity, but it would be a serious issue if brokers were deliberately switching clients simply for the commission.

“We have a few products with no early repayment charges, but it is difficult for us to plot a significant trend on churning.”

What may appease those concerned by churning is the recent growth in longer-term fixes, such as the seven-year fix launched by Skipton Building Society earlier this month, though some brokers stress that churning is not a problem if the customer is getting the best deal.

Association of Mortgage Intermediaries associate director Rob Griffiths says: “There is an issue for lenders when people are switching but I would not call it churning, more advisers highlighting the options for the client.

“The mortgage intermediary has a duty to get the best deal for their client, so if a two-year deal is up, brokers need to search for the best deal, which may involve switching.”

Griffiths argues that lenders may well have brought churning upon themselves by devising products that are ripe to either switch from after an introductory deal or are so attractive to someone on a competitor’s deal that they are better off switching.

“These issues have come about because lenders provide that type of product and intermediaries and clients take that up,” he adds.

Lender Nationwide does not see the issue being a serious problem. Head of intermediary markets Tim Hughes says: “The industry should not beat itself up but continue to focus on ensuring that customers are given best advice.”

Other lenders see churning as simply a function of a competitive marketplace, as Association of British Insurers director general Stephen Haddrill told the Labour Party conference in September when responding to McCarthy’s speech.

Cheltenham & Gloucester head of marketing Ian Whittaker says: “Churning is simply a function of a strong remortgage market. Low interest rates, rising consumer awareness and increased lender competitiveness have all led borrowers to switch more frequently.

“Remortgaging is now a key feature of the market and the fact that intermediaries work hard to ensure that their customers have the right mortgage deal is unquestionably a very positive thing.

The main weapon used against churn is the retention schemes employed by the likes of HBOS, Woolwich, Accord and First Active.

HBOS intermediary distribution and specialist banking managing director Philip Grant says: “There have been dynamics in the market that increase switching, but we are entering a period of increasing stability and intermediaries will need to look at what they are providing to clients.”


The Exchange completes billionth quote

The Exchange has completed its billionth quotation on behalf of the 24,000 advisers using its service since 1991.September saw a record number of online new business applications of 17,500 , while the quarterly new business submission figure increased 53 per cent since quarter three 2005.The Exchange attributes its progress to new product features being added […]

Newton down to earth

Bless Newton and their efforts. With what can only be described as marketing genius, the fund manager sent out polystyrene model aeroplanes boasting “Income funds with less drag” across the body. The irony comes, of course, when the plane is launched into flight – or rather, a sudden drop, as the plane possesses absolutely no […]

Pru retail sales are up but domestic business falls

Prudential delivered a mixed set of interim results, with double-digit growth in UK retail sales offset by a fall in the wider group’s domestic business. The firm reports that UK retail annual-premium equivalent sales increased by 11 per cent to £485m over the first nine months of the year compared with 2005. This was buoyed […]

Paymentshield will be sold to Towergate for 180m

Paymentshield is set to be sold to the UK’s biggest regional general insurance intermediary in an expected 180m deal, Money Marketing understands. The Towergate Partnership, which controls over 1.25bn of gross written premiums, is believed to be in the final stages of negotiations to snap up the mortgage payment protection insurance and buildings and contents […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm