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Crash crunch

Do you think that a housing market crash is a significant risk, especially in London, as economist, and former advi-ser to Kenneth Clarke, Roger Bootle warned at the Building Societies Association conference?

Stuart Glendinning: It is a pretty strange situation, when you could be £500 better off for simply having walked to your local newsagents and back to buy a newspaper, simply because house price inflation is so rampant.

The situation at present cannot be healthy in the long term. Hopefully, prices will even out without the need for a significant market correction such as a major price collapse but I would not rule it out as a possibility. Although experts claim there is nothing to worry about due to affordability ratios, I am naturally wary about such rapid price growth.

Robert Clifford: No, not a significant risk but I would certainly agree that the possibility is now less remote than at any time I can recall in the last decade. Who could have foreseen that even the UK average house price would exceed £100,000 and that in London prices could become almost eight-times the average earnings? While the recent year-on-year increases in property prices of between 9 per cent and 20 per cent threaten a serious discontinuity, I do not think that we will get as far as a crash. We can perhaps expect the monetary policy committee to raise rates to reduce the risk, as this is the only measure which is likely to realistically dampen consumer borrowing and then quell house price inflation.

Mark Charlesworth: A crash is unlikely, however current growth is unsustainable and we expect the market to level out. Overall affordability is good and although interest rates are expected to rise they are unlikely to go beyond 6 per cent, hence affordability should remain good.

The top end of the market in London is heading for some correction and this has already happened to some extent. Historically, there has been a significant rental sector in this market, especially corporate lets, but supply has now outstripped demand and rental yields are down to 2 or 3 per cent in some areas.

Should the Treasury revise its decision not to regulate buy-to-let in light of FSA director of high street firms Sarah Wilson warning of the risks to consumers and Sun Bank research showing that the majority of brokers want regulation?

Stuart Glendinning: No. I do not believe regulation in a mortgage industry is necessary as there has been no mortgage misselling scandal and the incidents of complaints from customers dissatisfied with their mortgage, after completion, is negligible.

Given that most people taking a buy-to-let mortgage are fairly sophisticated and are making the purchase as an additional investment/business commitment, there is a greater degree of knowledge. Regulation is unnecessary.

Robert Clifford: Yes. I have always found it somewhat disappointing that the mortgage code did not extend its remit to buy-to-let products and advice. After all, consumers still need protecting both from poor advice and potential financial detriment.

I hear and understand the argument that non-residen-tial status makes it a different animal,but do not see that this is an adequate argument for excluding it from direct regulation.

The CML suggests that net returns from investment properties are now as low as 3.1 per cent in certain locations, against a typical 6 per cent cost of funds and this statistic itself demonstrates how consumer can become financially exposed, let alone the need to control the quality of mortgage advice given.

Mark Charlesworth: Buy to let should be regulated but not just as a mortgage. Advising on whether buy to let is an appropriate investment should come under investment advice and matching the mortgage product to the customer needs should fall under mortgage advice.

What do you think about Mortgage 2000&#39s claims that it has overtaken its main rivals, IF Online and Mortgage Brain, to become the biggest electronic mortgage trading platform in the UK?

Stuart Glendinning: I seem to have stirred up a bit of a hornets&#39 nest when I announced that in April Mortgage 2000 electronically submitted over £20m of mortgages from Mortgage 2000 users to the appropriate lender. Clearly, I do not know for a fact that this makes Mortgage 2000 the market leader but I rather suspect that this is the case.

Despite various protestations from our main competitors, none has refuted this claim or pointed out that they introduced a sum greater than £20m in April. Mortgage 2000 has been working hard on electronic trading and we are beginning to see the results. I am hopeful we will be introducing over £50m a month by the end of the year.

I have little doubt that in the future intermediaries will submit most of their mortgages electronically and I am confident that intermediaries will prefer using a platform like Mortgage2000 or Mortgage Brain rather than access a lenders&#39 intermediary website. I think it is a good thing that intermediaries will have a choice of platforms, as competition will deliver service improvements.

Robert Clifford: In a relatively short time, these three players and others have made full electronic trading between lenders and intermediaries a much more real prospect. Making a lot of noise about being biggest is usually wishful thinking and, as an intermediary, it is an irrelevance to me who is technically the biggest.

The key thing is that the market has quality companies advancing the electronic trading initiative – Abbey&#39s investment in Trigold and Halifax in MBL is highly relevant. Competition must continue to exist. It would be disastrous if any one of these software houses established an effective monopoly. On this basis, I would prefer them all to hold a similar market share to one another.

Mark Charlesworth: Who knows and who cares? It seems inevitable that electronic trading will become more common but at the moment, because a signed application is still required, it brings little benefit to either customer or broker.

Ultimately, when electronic signatures are introduced or lenders change their process to allow issue of offer without customer signature real benefits will encourage increased use of this facility.

Do you think many mortgage intermediaries will take up the offer from the Financial Ombudsman Service to join it two years earlier than they will be forced to by the FSA?

Stuart Glendinning: No.I think only a small proportion will take advantage of this offer partly through inertia and because intermediaries have enough to contend with in terms of extra regulation which will probably be more onerous than it needs to be. And also because they will be focusing on sales and customer service, which are their primary objectives anyway.

Robert Clifford: No. Few brokers will do so completely of their own volition. No business owner wants to incur costs which could be avoided and there would be a danger that an intermediary would face additional costs earlier than necessary.

It would also obviously rely upon the intermediary agreeing voluntary inclusion escaping the provisions of MCAS, given that this exposes the broker to around £700 of costs per case heard. My suspicion is that very few brokers indeed will select FOS ahead of FSA jurisdiction, partly due to lack of knowledge and understanding in the marketplace and partly due to the potential of incremental and avoidable expense.

Mark Charlesworth: Given the complacency with which the impending qualifications deadline has been met and the eleventh hour rush for registration when the MCCB was introduced, it would seem unlikely that many intermediaries will join any earlier than is necessary.

Do you agree with Nation-wide&#39s call for the Treasury to make Cat standards compulsory on all mortgages sold to “vulnerable” buyers or without advice, including internet sales?

Stuart Glendinning: This suggestion is so bizarre I hardly know where to begin. The Cat standard, as far as mortgages are concerned, has been a waste of time and few in the industry would argue that a Cat-standard mortgage is necessarily the best product for a consumer.

I cannot imagine consumers being very impressed when they are advised that they are only being offered a Cat-standard mortgage because they are in the lender&#39s or intermediary&#39s opinion “vulnerable”.

Also, why should the internet be selected out for differential treatment, especially when one considers that the average internet user is fairly sophisticated? This suggestion is all about the self-interests of the Nationwide.

Robert Clifford: Absolutely not. I have high regard for the principle of Catmarking, especially where applied to investment products which funda- mentally place a consumer&#39s own funds at risk.

I admire Nationwide for wanting greater consumer protection but the market and the disastrous take-up of Cat products speaks for itself.

With mortgages, it is a tough one, as Cat standards can effectively stifle innovation in product pricing and provided that all costs, charges and penalties are highlighted and transparent, there is nothing wrong with fees and conditions.

We have many thousands of clients who have been delighted with deeply-discounted products which carried arrangement fees and redemption charges – the most important factor was that those clients were fully informed of the terms and conditions of their deal.

Mark Charlesworth: No. Cat standards have failed to win customer confidence and have very limited market share. Also, how do you define “vulnerable”? If a customer chooses not to take advice, it would be wrong to limit their choice to a basic range of products.

Do you think many intermediaries will offer ECU Group&#39s current debt management service to clients to help them reduce their mortgage by taking advantage of exchange risk movements despite it being a relatively risky approach?

Stuart Glendinning: No. The easiest products to sell are always the ones that are simple to understand so I cannot see this appealing to anything other than a niche market, and a very niche one at that.

Robert Clifford: If it rewards brokers sensibly, it is possible that the service will gain support, as brokers face ever-reducing margins from pure mortgage broking. This offering could presumably significantly increase a broker&#39s earnings capability, and this would be a key driver.

On the other hand, a mortgage sales interview can already take some two to three hours and additional advice and servicing is often avoided by advisers.

Add to this time pressure the fact that most mainstream brokers will regard such a scheme as technically specialist and perhaps one which gives their clients a little too much financial exposure, and you probably have a product which will only be seized by specialist brokers, dealing with sophisticated clients.

Mark Charlesworth: No. Introducing the level of risk involved in currency fluctuations to debt management is inappropriate and the customers who require debt management services would perhaps not fully understand the risks involved.

Stuart Glendinning, director,Mortgage2000

Robert Clifford, managing director,Mortgage Force

Mark Charlesworth, managing director, The Mortgage Operation

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