Ian Gray adviser, Largemortgageloans.com
Bob Young Managing director, CHL Mortgages
David Hollingworth Head of communications, London & Country
In the Budget, the Chancellor announced measures to temporarily cease stamp duty on all first-time buyer properties under £250,000. Was this electioneering or is this crucial to get the mortgage market moving again?
Gray: It would be safe to say this announcement was motivated to appeal mainly to the masses of the voting population. Also, saying that this is a crucial move that will kickstart the mortgage market is being wildly optimistic.
This move will encourage more prospective buyers to enter the market, which is a step in the right direction, but it does not address the lack of willingness to lend, which remains a huge problem and will always be so until the Government addresses it properly.
Young: This was undoubtedly a political move from the Chancellor but that does not make it a bad thing. First-timers are vital if we are to see an increasingly stable housing market and while this exemption might not be the difference between the buyer getting in to the property market or not, it will certainly help in terms of funding the purchase.
The Government has not committed to anything more than a two-year exemption period but I would be very surprised not to see this made a permanent situation if it is judged to be successful.
Hollingworth: It is always easy to point a cynical finger but the bottom line is this will at least strip out some of the cost in making the first step and be of help to many firsttime buyers.
Equating to as much as £2,500, the break will help first-time buyers, who still have to amass big deposits to stand a chance of buying. I do not think it will generate a huge rush to the market but it certainly cannot do any harm.
In a recent Money Marketing interview, HML chief commercial and finance director Neil Warman predicted that the new and existing banks will use cross-selling to develop their propositions. Is the crossselling of mortgages alongside other banking products such as credit cards and current accounts an opportunity for brokers or should it be viewed with caution?
Gray: There is nothing wrong with mortgage lenders trying to cross-sell ancillary products with their mortgages and brokers should not be afraid of it as long as it is not made a requirement for the lending.
Brokers will need to become more familiar with how clients can benefit in other ways as a result of their introduction. The days of high-volume, low-service mortgage broking are over and this can only be a good thing for consumers.
Young: One is tempted to question what is new about all of this – is there really a broker out there who isn’t aware that the high-street lenders have been cross-selling for years?
Most of the modelling for mortgage products assumes that other bank products will be sold with it and this is unlikely to change.
The client is always going to have any number of financial product needs and any operation worth its salt will work hard on ensuring they secure as much business as possible per client.
Hollingworth: It is hard to imagine when lenders did not try to cross-sell products but the current environment and restricted mortgage availability opens up opportunities for lenders.
We have already seen lenders looking to attract new current account business in exchange for a better mortgage rate and we are also seeing incentivised mortgage offers to those that already have a current account. I think brokers will and should keep an open mind to this kind of proposition – the key in its success will be down to there being something of tangible benefit to the customer.
Kensington Mortgages was recently fined more than £2m by the FSA for past arrears management failings and the regulator has revealed six more firms are under investigation for similar failings. In your experience, have lenders improved the way they are now dealing with borrowers in arrears or are they still being given a raw deal?
Gray: The sub-prime lenders made significant profits lending to those whose affordability and creditworthiness was questionable when the times were good. Now that they have realised they should probably not have made those loans in the first place, they have a duty of care to treat the borrowers with the utmost degree of fairness and understanding.
However, a loan is a loan and it is not difficult to understand that it must be repaid and interest must be serviced. If the loan was granted with methods that we now realise were reckless, then the lenders absolutely have a duty to make sure they exercise fairness in the management of arrears.
Young: The writing has been on this particular wall for some time now and I would be surprised if any lender has not significantly reviewed their collection strategies to make sure they are treating the customer fairly.
Like many things in life, this is two-sided – a delinquent account does cost the lender time and money and although this should not be seen as a profit opportunity, neither is it fair for performing accounts to subsidise non-performing accounts. There has to be a balance between the two and clearly, in the past, some lenders have not got this balance right.
Hollingworth: Greater forbearance would seem to have contributed to better than expected repossession figures. However, there has long been criticism of the kind of costs that those struggling to meet payments have faced. The borrower has clearly failed to meet their side of the bargain but imposing huge fees that only serve to worsen the borrower’s position would seem to help no one.
The FSA has sent a clear message that it has no intention of allowing lenders to impose fees and charges that cannot be shown to reflect true costs and I think this is bound to sharpen the focus on current practice.
The Budget also brought news that HM Revenue & Customs is to talk to mortgage lenders about introducing a formal income-verification scheme to tackle fraud. How will this affect the mortgage adviser’s job if this scheme were to become a reality?
Gray: Given the current realities involved in applying for mortgages, a rule like this would not cause much change. Anyone now applying for a mortgage must prove beyond doubt their income and it is almost always the taxable, declared income that lenders use to assess affordability.
Formalising this and involving HMRC would not affect a mortgage adviser’s job, assuming they carry out the proper income checks according to FSA rules anyway.
Young: The problem for mortgage brokers is that some clients do not tell the truth and the broker can become unwittingly complicit in deceit perpetrated by the client.
Where the true income is debatable, then this type of formal scheme as outlined in the Budget will help validate mortgage applications and reduce fraud.
In the long run, this will be a positive move for all involved in the mortgage process. Fraud reflects badly on every stakeholder and if we want to secure greater confidence in financial services we need to be at the forefront in fighting it.
Hollingworth: There could be some real positives for the lending market in improving the information available to lenders. Criteria has tightened and self-certification and fasttrack have increasingly come under the spotlight, so we already have a situation where lenders are requesting more evidential documentation, which can put a strain on everybody’s processing times.
Offering a route to quick and transparent income verification and circumventing the need for additional documentation could have real benefits not only for lenders and brokers but also for the customer.
According to recent figures by technology firm Greenlight, online mortgage searches accounted for a 58 per cent share or 3.2 million searches of the 540 most popular search terms in January 2010. Is this evidence of a move towards a more execution-only-heavy sector and, if so, how are mortgage brokers going to survive in a world where online mortgage applications are the norm?
Gray: Lenders continue to tweak their products with online features and benefits that appeal to certain people, but not all. Also, it is much more difficult to borrow money and it always will be, when compared with pre-crunch criteria.
We take enquiries every day from people who have done their initial mortgage sourcing online themselves but end up needing the advice, guidance, and time-saving services of a professional.
Brokers need to adapt to this reality and focus their efforts on those deals where they can really add value.
Young: Mortgages researched online never follow through into active fulfilment. People like to get reassurance from an adviser that they are getting the best deal and you struggle to build rapport and have confidence online.
I do expect to see a growth in the number of advisory firms offering a totally online advice experience as it suits our changing lifestyles, needs and use of the internet.
Execution-only has long been touted as the way of the future but this ignores the fact that people like to draw comfort from other people after all, people buy people first, services and products, second. I suspect that mortgage advisers can sleep easy in their beds for a few more years to come.
Hollingworth: I do not think these figures represent a huge shift towards consumers searching and selecting their own mortgage online.
What it does indicate is customers are using resources available online to conduct an initial search of the market, which helps them get a feel for the pricing of products and what is available.
However what it also highlights is the huge amount of choice, even in a more restricted market. Customers understand that there is more to a mortgage than the headline rate and it is still a big step to hit the apply button without having taken any advice.