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Executioner&#39s tale

Thousands of mortgage intermediaries working throughout the UK must

now prepare for the latest “service” to be marketed nat-ionally in

the press, namely execution-only mortgages, with a further benefit

for respondents to get a share of the procuration fee.

Execution-only mortgages have been available for the enlightened

consumer for many years, so why the fuss?

We know that competition for the mortgage borrower is fierce between

lenders but now the battle is even more likely to get hotter between

intermediaries.

If execution only is to be the new success story for our industry,

bearing in mind remortgage business for the next two years is likely

to represent 50 per cent of total new lending, then I believe there

will be some long-term implications for lenders, intermediaries and

consumers.

We all want something for nothing – advice is no differ-ent –

mortgages coupled to a client&#39s lifestyle automatically becomes

complex. It is not just about the cheapest rate for the next two

years.

Consumers buying off the page for rate and to get an inducement

payment (partial proc fee) are potentially missing out on the many

benefits designed by lenders in using a mortgage and their property

to help them find a more efficient way to structure a facility to

match their changing lifestyles.

The development of flex-ible payments current account mortgages with

the offsetting facility is now more important to the consumer than

just the cheapest rate on offer and/or a cash gift disguising the

benefits of advice. Furthermore, with endowment shortfalls an issue

for the mortgage industry, clients will need more face-to-face advice

and aid in overcoming this problem – execution-only is not going to

resolve this issue.

Mortgage intermediaries have long complained about section 155 of the

Consumer Credit Act 1974 which currently allows them to charge a

client £5 for hours and hours of mortgage-related work if the

application does not proceed.

Mortgage intermediaries will either see income going elsewhere or be

in the situation of trying to get £5 for their effort and advice

to be turned into an execution-only request elsewhere.

If that is not bad enough, why would lenders keep paying for mortgage

business through a channel like the small oneto twopartner mortgage

intermediary firms when they can buy in bulk for a discounted price?

The proc fee is an acquisition cost which compares favourably with

business coming through the branch network but margins have and are

being squeezed so why pay more for certain types of mortgage business

when the len-ders only have to pay, in ess-ence, an introductory

payment for all types of remortgage business from one outlet?

Costs for lenders and intermediaries will be a major issue with

statutory regulation on the horizon. Somewhere, savings will need to

be found and made.

Lenders depend on the thousands of mortgage intermediaries providing

a valuable service within the housing community in the areas they are

based – does a mortgage intermediary in Bristol know the value, area,

amenities, etc, of a property in Preston, Dunfermline or Southend?

Local knowledge is vitally important not just to the lender but also

to the consumer, regardless of whether they are first, second or

third-timebuyers or remortgaging to raise capital.

In all instances, advice is vital. To squeeze out thousands of small

mortgage intermediaries due to the executiononly route will in the

end have an impact on the products and product design that the

marketing departments of inno-vative lenders have created.

Execution-only is designed for the public who can make up their own

mind once they have researched the market – why then did 51,000

mortgage intermediaries study and achieve additional qualifications

at the request of a voluntary regulator by December 2002, knowing

that in most instances, clients have difficulty in making the right

mortgage decision?

With 15-plus lenders offering between 3,000 and 4,000 mortgage

products, knowledge and experience are crucial in directing the

client to the right lender&#39s product. Clients do not see the

additional product benefits without someone explaining to them the

intricacies of these benefits.

Two things will happen. Either the consumer will take the information

and take up the half-price offer elsewhere or they will have

forgotten the information and just decided on the rate promoted.

Either way, the offer of having a percentage of the proc fee rebated

will be an offer that some clients cannot refuse. To get something

for nothing is an obvious attraction.

With this in mind, I am sure the jobs pages will soon be advertising

the following: Mortgage executioners wanted: No previous experience

required, no qualifications needed.

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