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Crunching the numbers

Mortgage inter-mediaries have largely backed the open letter written to them by Premier Mortgage Service managing director John Malone that was published in Money Marketing last week.

The letter, signed by the heads of six rival companies representing more than 30,000 brokers, calls on intermediaries to understand and make allowances for the huge strain that the credit crunch is placing on lenders.

The group of distributors backing the open letter includes PMS, Sesame, Openwork, Pink Home Loans, Personal Touch Financial Services, Legal & General Mortgage Club and Home of Choice.

The letter states that intermediaries are wrong to accuse lenders of acting irresponsibly and breaking the requirements of the FSA’s treating customers fairly regime by withdrawing products at short notice.

It says: “This action by the lenders in our opinion does not constitute part of treating customers regime but more a commercial decision to protect their own liquidity position in keeping with running their business in a commercially sound way.”

Association of Mortgage Intermediaries director Richard Farr says: “It is a sign of how strong the mortgage market is that lenders and brokers unite at troubled times to ensure that the interests of the consumer remain paramount.

“The market liquidity crisis is turning into a collapse of confidence, which is driving up rates and restricting criteria. It is important for the whole industry to understand each other’s pressures and to work together to resolve the issues.”

Belgravia Insurance Consultants consultant Paul White agrees that lenders are commercial organ-isations which have to operate whatever way they can in the current market.

He adds: “We are living in different times and the actions which are being taken are due to the market conditions. Lenders do not usually do this. We need to do everything that we can to calm these problems.”

Anand Associates inde-pendent financial adviser Sonny Joannou says he prefers lenders to protect themselves at this stage rather than let customers get into trouble.

He says: “Why would lenders not want to lend? Their lifeblood is to lend, so they are obviously doing it for a serious reason.”

The Mortgage Practit-ioner sole trader Danny Lovey points out that in these conditions, everyone needs to understand what everyone else’s situation is.

He says: “I understand why the lenders are doing what they are doing. It is the world that we are living in today. We have got an inverse competition situation at the moment. No lender wants to be the lender of last resort.”

Hamptons managing director Jonathan Cornell says he agrees with Malone’s point about intermediaries being wrong to accuse lenders of breaking the requirements of TCF.

He says: “TCF does not require a lender to lose money or go out of busin-ess. If lenders went out of business that would be even worse for the industry.”

Malone points out that he has been at the sharp end of a number of tough times in the market and the open letter is trying to make brokers realise the implications of what the market is experiencing.

He says: “We are in a market that is freakish. This is not a concerted campaign by the lenders to go direct to the clients and to cut us out. I do not believe that, at this moment in time, there is a lender who is looking to take advantage of the situation.”

But Lovey believes there are some lenders which are using the situation to cut brokers out of the system. He says: “I agree with most of what the letter is saying. But this is one area where I think lenders are open for criticism. Some lenders are cross-selling where they should not be.”

Baronworth Investment Services director Michael Brill says: “I think I can understand to a point what the lenders are doing but they are overreacting slightly. I think they have gone too far with the way they are withdrawing rates.”

He says he is also concerned that lenders will only look after those intermediaries that have regularly given them a lot of business.

He says: “I think this is unfair. Smaller inter-mediaries cannot give them that type of business.”

The letter calls on brokers to encourage clients to save more regularly with lenders to alleviate some of the liquidity problems. The group suggests the situation will not improve until at least halfway through 2009 unless the Bank of England and the Government intervene to restore confidence in the wholesale markets.

Malone says: “This is serious, it is about the well-being of the country. We have got to bring our resources together as we have a real issue here.”

He says he believes that gross mortgage lending could be as low as £250bn this year, a fall of nearly a third from £360bn last year.

“This letter is the first one for us to get together. We need to move the message forward to the Government and the Treasury. I think that distributors getting together to send a collective message will have a big impact,” he says.

Farr says the AMI is working with politicians, the Treasury and policy-makers to promote a range of initiatives to “restore much needed trust and confidence back into markets”.

He says the AMI will be sharing these details with its membership shortly.

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