Will the Financial Ombudsman Service's recent ruling against dual pricing by Halifax, Nationwide and Abbey National destroy competition and product innovation in the mortgage market or do you support the ruling?
Cherry: As a lender that from day one has had totally transparent interest rates tied to Libor, SPML welcomes the ombudsman's ruling. Supporting the ruling does not entail a position opposing competition and product innovation. Fair treatment and clarity to all customers – which is surely the principle that underlies the ombudsman's ruling – does not work against competition and innovation. It is simply good practice and to be encouraged in all lenders.
Glendinning: The Financial Ombudsman Service's decision relates only to the precise wording of the contract of the complainant and was not a view on whether lenders could apply more than one base rate. What lenders do with their base rates is up to them and I am not convinced the borrower would have won if the case had gone to a court of law. I am worried about the extent of “market intrusion” by bureaucrats. There is no question that the market is being stifled.
Wicks: The ruling made by the ombudsman was a specific judgement about a specific case. What it has done is knock on the head any thoughts that providers may have had about operating a dual-pricing policy. We believe the judgement will not stifle competition or, indeed, innovation. In fact, more and more UK providers are following our example by offering higher levels of flexibility.
Do you think current acc-ount mortgages from the likes of Britannic Money are only suitable for high-net-worth clients with savings as well as a mortgage, as some brokers say, or will they grow as a mass-market product?
Cherry: It is not really the size of the net worth of clients that determines the suitability of a current account mortgage for them. For example, the self-employed can have erratic earnings patterns and would benefit from a current account mortgage, whatever the level of their earnings.
Furthermore, it is not just high-net-worth clients that have savings. The key to successful current account mortgages for consumers is the ability to make the best of managing their cashflows.
Many people on lower incomes are skilful managers and will immediately grasp the principle that the more cash you keep in the account the less interest you will ultimately pay.
Those borrowers who see a current account mortgage as an infinite source of drawdowns, without ever making inroads into the capital sum borrowed, will not be using it to their best advantage – however high their net worth.
Glendinning: Offset mortgages that allow savings and other borrowings such as credit cards and personal loans are making the original current account mortgages look a bit dated. There is no question that offset mortgages are popular, however, there is little prospect that they will become “mass market” as the smart consumer will shop around and get the best mortgage, savings, personal loan, etc rate from different providers.
Despite all the talk of bancassurance and cross-selling, experience shows that, more and more, consumers understand the benefit of shopping around – with customer loyalty diminishing all the time.
I do believe that most mortgages in the future will be flexible in that the interest will be calculated on a daily rest basis. I do not think current account mortgages are limited to high-net-worth clients because those with higher amo-unts being paid into their current accounts probably have higher borrowings to match. However, they are only for those who can be disciplined with their finances.
Wicks: Current account mortgages tend to be for more astute customers who want ultimate freedom with their money. Even in Australia, where they have been around for at least six years, current account mortgages have not become standard. The barrier facing many mortgage customers in the UK, however, is one of perception. Here, many of us are conditioned to believe that a mortgage is “debt for life, to be taken out over 25 years” and no less. One of the key differences in Australia is that homeowners use their mortgage to work for them.
Do you welcome Imla's move to try to establish a new trade body for all mortgage intermediaries and do you think it will gain the support of the industry?
Cherry: There are a number of issues facing mortgage advisers in particular at the moment, including compulsory qualifications and the FSA's regulation of mortgage advice, where a unified and established trade body would provide a strong voice for the interests of advisers. Of the existing trade bodies, none has emerged as a strong proposition. It is in the interests of advisers, borrowers and lenders alike that some strong impetus is put behind the Imla initiative – even though it is only in the initial concept stages. As an Imla member, we fully support the principles behind this initiative.
Glendinning: It was a close call with CP98. For lenders to be responsible for the “disclosure” of intermediaries was perverse but now it is a case of out of the frying pan and into the fire because full-blown mortgage regulation is on the way.
Intermediaries desperately need a trade body and a spokesman like Ben Gill, leader of the farmers' union, who is prepared to hard-nose it with politicians and representatives of other organisations that are lobbying so effectively against the mortgage industry, like, for example, the Consumers' Association.
Nonetheless, the problem of independently representing such a fragmented and competitive industry is an obstacle as is how it is funded.
Many intermediaries will want the benefits of effective lobbying, yet will not be prepared to pay a monthly or annual premium. With important changes on the horizon it is disappointing that intermediaries have no effective voice.
Wicks: Our view is that there is certainly room for more coordination within the industry. Whether or not Imla manages to help this is dependent on buy-in from the rest of the industry – bodies and pro-viders. We await Imla's next steps with interest.
Do you think Mortgage Brain's move to hand its ownership to a limited number of lenders could restrict competition in the market?
Cherry: So far, Mortgage Brain is not the only player in the common trading platform market – with If Online having signed up Abbey National. Competition is not only an issue within the market, it is also safeguarded by Government and regulators, so let us hope we will not see it seriously jeopardised.
Glendinning: Mike Green has said repeatedly that it is his intention to build the only electronic trading platform in the UK, so clearly Mortgage Brain is stating that it does not want competition. Intermediaries would have to be anaesthetised to believe that a handful of lenders having a monopoly of electronic trading would be good for them.
Halifax, Nationwide, Alliance & Leicester, etc took over Mortgage Brain to protect their own interests which, as far as I am concerned, is fair enough. But we should not kid ourselves that intermediaries will benefit from the “simplicity” of one electronic route.
Do you think the remaining mutual building societies, including Britannia and Portman, will be able to survive challenges from carpetbaggers at their AGMs in the spring?
Cherry: Mutuality is an ideal which is cherished by those lenders who are still structured as mutual organisations and they will not give it up lightly. As history has shown us, mutual lenders are well able to fend off the advances of carpetbaggers. So I think it is likely that now the hype surrounding windfalls for customers has also died down the building societies will win the day.
Glendinning: Building societies have been written off prematurely before and given that many have the charitable donation defence in place it is going to become harder and harder to “force” a conversion upon an unwilling board.
The Nationwide vote of a couple of years ago also demonstrated that not all customers want a bung – the surprise result to retain mutuality being an uplifting moment in a world increasingly dominated by the blame and compensation culture. There is plenty of room for mutuals so I hope and believe they will survive.
Wicks: It is up to the members and not the industry.
Do you think the FSA will be able to stick to the proposed timetable of having legislation for mortgage regulation in Parliament by June this year, to be put into effect by the second quarter of 2004?
Cherry: It is early days yet, but, given the FSA's late U-turn on the regulation of advice, with all the extra consultation and work on the draft legislation that it will entail, I would consider it highly unlikely that this timetable will be achieved.
Glendinning: Regrettably, yes. I am sure they will not let any minor details like lack of consultation and a failure to understand the market stand in the way of more unnecessary market interference. I believe that Howard Davies, who formerly was against mortgage regulation, is now toeing the ministerial line and is an impotent regulatory figurehead. This Government wants to make the claim that it is defending the consumer against “profiteering lenders” and “scurrilous intermediaries” who rank proc fees above the client's needs.
The CML is timid and mortgage intermediaries have no industry voice. The whole thing is depressing. What next – a full fact-find when you buy a car or a holiday?
Wicks: That really depends on the consultation process and how well it is managed. Again, we await the next steps with interest.