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Duffy on mortgages

This week’s commentary features a 75m deal and the transfer of Alan Mudd back to Charcol from Savills. These items are unrelated and were certainly not part of any clandestine shenanigans in a west London hotel but both are harbingers of what could be an intriguing year for the mortgage industry.

The 75m deal relates to a property in Surrey which Hamptons has been instructed to sell. Preliminary mortgage enquiries on this confirm that this may not be a deal for the Stafford Railway or Tipton and Coseley building societies. But should the eventual buyer need finance, then any subsequent FSA inspection will want to ensure that this customer was treated fairly. That is to say, products offered to him were no more favourable than those which the selected lender might have offered its existing borrowers.

The TCF charter is still a little nebulous but it will encompass mortgage churn and equilibrium pricing. I understand that the the CML is mobilising behind Miles’s recommendations while free thinkers such as Portman’s Matthew Wyles have already advocated the payment of procuration fees according to debt longevity.

I agree with Wyles’ sentiments. Notwithstanding TCF’s ethicality, it is a measure which would embed greater valuation in a brokerage’s primary asset – its back book of clients. But I cannot help thinking that these good intentions are both unavailing but also contradictory.

Who encourages churn? The answer is, all of us. The consumer for one is price-led and always will be. As for brokers, we clearly have a commercial interest in executing as many deals for our clients as frequently as possible. The contradiction, however, comes in the behaviour of many lenders whose trade body is trying to reverse the tide.

Forty-two per cent of new business last year was remortgages. Many were incentivised by free valuations and conveyancing costs and a two-year fixed or discounted rate superior to what existing borrowers could apply for. If rates do now trend southwards and if homebuyer activity continues to be subdued, then I sense that 42 per cent last year is going to be nearer 50 per cent this year.

Lenders are in business to make money . They price product for market share and margin preservation as opposed to altruistic principles. Five-year products are designed to secure a securitisable asset base, not to pacify the lobbyists in Whitehall. Witness Scarborough’s present fiveyear products (where churn is discouraged via redemption penalties) with offers of 3,300 plasma TVs. What next – 10-year rates accompanied by 10-year debentures at Arsenal’s new stadium?Make no mistake – all commercial markets are self-determining. Churn is here to stay, I’m afraid.

Remaining on the theme of trying to effect ideological change, the transfer of industry warhorse Alan Mudd back to Charcols from Savills is a news story of Chaz and Camilla proportions. Mudd was one of Charcol’s mid-1990s’ stars.

The move may be Charcol’s coup de grace but should not be read as Charcol 1 Savills 0. Attracting other prodigal sons back has had mixed success and if truth be known, Savills has given its arch-combatant and the rest of us more than a bloody nose over the past five years.

What it does signify for Charcol is that the fightback has started. As we enter the awards season, it will be interesting to see if there are some more quick wins for Charcol. Perhaps in the realms of product innovation and the adoption of the very CRM system (Pivotal) which was ironically first custom-built for Savills in 1997. In a mundane 2005 market, there is going to be more jousting to come.

Kevin Duffy is managing director of Hamptons International Mortgages

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