Is Halifax right not to compensate all borrowers affected by “dual pricing” following the ombudsman's ruling and just pay out to customers it had received complaints from?
Bolton: Halifax did not automatically move customers from one interest rate to another. Customers applied to do that because they had to change their interest calculation at the same time. The ombudsman ruled that that was the sens-ible and practical thing to do so they could sign new terms and conditions. Therefore, Halifax is compensating every customer who applied before they withdrew the rate. If customers did not apply, the ruling is not relevant.
Smith: Under complaint resolution rules, the lender should deal with customers who have complained and would not be required to extrapolate a policy to all borrowers from one, or even several complaint cases. I think this story will have some way to run, however, and the Halifax will doubtless take into consideration how it wishes to be perceived by consumers.
Richardson: This is a matter for the Halifax to resolve but in the interests of fairness it would seem appropriate for all affected customers to be compensated. It is clear the Halifax is acting in the best interests of shareholders rather than customers. This is a short-term strategic outlook and could end up backfiring on them in the long run. By not acting expediently in this matter, they risk much more than financial damage. Reputation takes a long time to build and a second to destroy – they are on dangerous ground with this one.
Is the level of mortgage regulation the Treasury is proposing in its consultation paper published this month justified in terms of the negligible level of consumer complaints on mortgages?
Bolton: Yes. It is true that there is only a small level of complaints on mortgages. However, for most people, their choice of mortgage is one of the most significant financial decisions of their lives. HBOS has consistently called for mortgage advice to be regulated and for a single regulator, the FSA.
Statutory regulation will provide the protection consumers need. The choice and range of mortgage products is bewildering and it is vital that the intermediary makes a recommendation based on what is best for the customer and is not influenced by other factors, such as the amount of procuration/packaging fee available on a particular product. In addition, the introduction by the FSA of a prescribed format for disclosure of all relevant information will improve the customer's understanding of mortgage products, which has got to be a good thing.
Smith: The Treasury consultation paper is not the last word on the level of regulation that will be applied to mortgage advice. There is much more to come that will shape the operating environment that we find ourselves in.
Some of this will stem from the FSA CP121 paper and its comments on a possible two-tier structure for advice and the rest will come from the FSA paper setting out the detailed rules, anticipated later this year.
I take heart from the restatement in the Treasury paper of the need to keep regulation proportionate to the problems it seeks to tackle. If the FSA holds true to this principle they should take a pragmatic approach and have a relatively light touch on mortgage regulation.
Richardson: The question that needs to be asked here is why are there so few mortgage complaints? Is it because the product, service and advice available in the mortgage industry are the best in the financial services industry? Or is it because consumers do not really understand what they are buying when they buy a mortgage? Do they know how and to whom they should complain?
The cost of buying the wrong mortgage can be high. It is, therefore, imperative that an appropriate level of regulation is in place to support everyone who enters into a mortgage contract.
As Ruth Kelly noted recently, regulation is not the only tool in the toolbox. The Economic Secretary to the Treasury pointed out the importance of improving available information and improving consumer education alongside effective regulation and I tend to agree with this approach – informing consumers is key.
Do you agree with buy-to-let mortgages not being covered by regulation as they are regarded as commercial?
Bolton: The main driver behind mortgage regulation is protection for consumers purchasing residential property, that is, the family home. Therefore, if every buy-to-let mortgage was purchased by a seasoned investor running a portfolio of property, that is, a commercial investment, then we would probably take the view that they need not be regulated.
However, the huge boom in buy-to-let lending has been on the back of a surge of “amateur” investors who view the proposition as an alternative to their savings or pension, so arguably there is a need for the same level of consumer protection here.
Smith: This is probably the only sensible way to handle this issue, as much of what is proposed for the regulation of residential mortgages would be entirely inappropriate to apply to the case of landlords of commercial property, large or small. There is perhaps a role for the FSA to play in educating consumers about the ins and outs of buying properties to let and other bodies such as Arla could also help make sure that potential landlords go into this market with their eyes open.
Richardson: Advice on residential mortgages is the important thing because it is here that the greatest need for consumer guidance exists. A buy-to-let mortgage is a commercial transaction because the purpose is, at worst, to cover costs and, at best, make a profit on the capital investment. This is quite separate to the need to regulate residential mortgages.
Can you separate the Treasury consultation on mortgages from the FSA's CP121 review of polarisation?
Bolton: Both consultations are FSA-driven but they have separate timescales, separate consultation papers and are separate projects. It is not clear at this stage whether the new depolarised regime will be applied to the mortgage market but in any event there are bound to be some changes in the intermediary market which will have an impact on the supply of mortgage business to lenders.
Smith: The two are interlinked, in particular, since the CP121 proposals could end up setting a framework for the way the mortgage advice market would be required to operate.
However, there is a long way to go, both on mortgage regulation itself and on the proposals for a possible two-tier approach to advice and regulation suggested in CP121. So, at this stage, it is wise to consider them together and to make sure that the regulators are made aware of the potential impact of one on the other.
Richardson: With mortgages currently lying outside the polarisation remit, the Treas-ury consultation and FSA review are easily separated. However, with mortgage regulation just around the corner, it is clear the polarisation debate is one that mortgage professionals need to be closely involved in to understand what it will mean for their respective businesses.
Do you think the £5 limit on a brokerage fee where advice does not lead to a client buying a mortgage should be scrapped?
Bolton: As a lender, we do not charge for our advice where the application does not proceed. However, clearly, the remuneration basis of intermediaries is a matter for them to determine. The important thing is that any fees should be transparent to, and agreed with, the customer.
Smith: Yes, since buying a mortgage is not always the best advice for all clients. However, any change needs some safeguards put in place to avoid abuse, and there is no easy answer to this. A higher fee might just level up what consumers are charged in all cases whereas having no limit could lead to a free-for-all. It would be good to see suggestions for a replacement control rather than simply abolishing it.
Richardson: I think there should be a limit but £5 does appear to be too low for the amount of work an intermediary has to undertake to arrive at a decision for a client.
After doing a fact-find, if the advice is for the client not to take out a mortgage – supported by a reasons-why document – then that advice should be remunerated acc-ordingly. Perhaps research is needed to work out a fair cost for advice that results in no mortgage contract being entered into.
Do you think with the launch of Mortgage Express's new service at www.mx-online.co.uk this month that there are too many websites for brokers provided by mortgage lenders?
Bolton: It is not the quantity but the quality of websites that is important and there are some real advantages to be gained for broker and lender alike when the website is of good quality.
BMS will itself be launching an interactive website later this year offering a range of functions within a secure environment. These include product matching, calculation and illustration facility, decision in principle facility, intelligent application form and case tracking. From any point of view, this will make life easier for brokers, which is all part of our service.
Smith: Certainly not. It is encouraging to see lenders getting to grips with provi-ding good information and services to intermediaries themselves. The industry has been poor on this in the past. A good broker will have no trouble deciding which sites to use and which to ignore. E-business is the way that lenders and intermediaries will have to go to remain competitive in the future.
Richardson: It is important that lenders provide appropriate tools to intermediaries to allow a swift and seamless service. In reality, intermediaries only deal with a core of lenders so I do not think it matters that every lender is clambering on to the interactive website bandwagon. Lenders that are only now launching this kind of service may find they are already too late to market with their offering. Having said that, it is important to provide choice to intermediaries – however late in the day, so they can decide the most appropriate way for them to do business with a lender.
Michael Bolton, head of lending,BM Solutions
Stephen Smith, director, housing marketing,Legal & General
Anthony Richardson,head of business partnerships, Virgin One