Are you concerned that another wave of endowment complaints may be about to hit the industry, as a significant number of consumers are currently facing shortfalls but have done nothing about it, as principal ombudsman (banking and loans) David Thomas has suggested?
Barrett: Endowment complaints are a huge issue for the industry. Extensive media coverage has resulted in a large majority of consumers having already submitted their endowment complaints. However, there is bound to be a constituency that is yet to act.
Lenders need to be resourced to deal with this eventuality and to ensure a high standard of service for those consumers submitting endowment complaints.
Mountney: My greatest fear in this respect is that there is no obstacle that a potential complainant has to negotiate in putting a claim in. I firmly believe that a small deposit, refundable in full if the complaint is upheld as legitimate, would reduce the pressure on the Financial Ombudsman Service. The statistics support the simple fact that the majority of complaints are not legitimate and all that does is clog up the system and increase costs across the board.
Smith: We do not expect a significant increase in endowment complaints. Consumers have been receiving information about their endowments since the beginning of 2000. All policyholders will understand if they are likely to face a potential shortfall at maturity and there is nothing to indicate that because some consumers have chosen not to take action over their potential shortfall, that they now feel they were given bad advice and should now complain.
What do you think of the Treasury's decision to regulate home-reversion schemes and will the rules be in place in time for mortgage regulation this October?
Barrett: First of all, we absolutely welcome the decision to regulate home reversion. Although it has taken some time, the FSA has once again demonstrated that it is willing to listen to the concerns of the market. Home reversion is, by its very nature, a complex and high-risk product so regulation in this area makes complete sense.
However, there is no way that home reversion will be regulated from October 31, 2004. The consultation process needs to be completed and Parliamentary time needs to be found. Therefore, the back end of 2005 feels likeliest.
A silver lining is the fact that players operating within home reversion in the meantime will still be subject to the FSA's general principles of business. If businesses flout best practice, then the FSA will take notice and is likely to come down hard at the appropriate time.
Mountney: It is a sound move but too late to hit the November 1 deadline. This would have been so obvious with a little more aforethought and early reaction to the demands from the ground.
Smith: This is a good move by the Treasury which should create parity between the main schemes and will avoid reversion schemes becoming a backwater of the industry. The regulatory rules will not be in place for some time but, in the meantime, the product providers are likely to ensure that good standards of sales have been carried out.
Do you think the market for Islamic mortgages is going to grow?
Barrett: There is clearly a market for Islamic mortgages. More and more major players are offering this kind of mortgage and so the market is set to grow. These sort of specialist products are certainly appearing on lenders' radar.
Mountney: I doubt it. While the requirement is well understood, the majority of demand will be for mainstream UK mortgages and, because of that fact, the number of lenders willing to enter the market will remain small.
Smith: Yes but probably quite slowly. If you take the lifetime mortgage market as an example, it is still a niche market and has been growing steadily over the last few years.
Islamic mortgages are likely to follow the same pattern, as intermediaries gradually get used to the product and its complexities.
Do you agree with FSA chief executive John Tiner that some lenders operating in the buy-to-let, sub-prime and self-certification markets have not properly assessed the risks?
Barrett: All lenders should, as a general rule, keep a close eye on their books and operate responsible lending policies. If they do not, then they certainly have some serious questions to answer and not just because of regulation.
It is not in lenders' interests to lend to someone who cannot pay them back and let us not forget that, according to Chapter 11 of the MCOB, lenders must ensure that they are lending responsibly and prove that they have considered the consumer's ability to repay the mortgage.
Mountney: No. Lenders have very sophisticated systems for analysing any risk that they may come up against and buy to let is no different from ordinary prime or sub-prime.
Repossession rates are low across the board and that suggests that everyone in the arrangement is going in with their eyes open. Even if interest rates rise a little, there is nothing to suggest that the lender risk is going to increase.
Smith: Lenders have an obligation now for responsible lending and so we should expect them to assess the risks properly, taking into account any potential market downturn.
Our own experience would show that most lenders do cover the potential risks in their literature. The risk is that consumers are more confident than they should be that the returns they are receiving on property will continue indefinitely.
What do you think of Alliance & Leicester's decision to deal only with bigger intermediary firms after mortgage regulation. Will other lenders follow its lead?
Barrett: As a general observation, the huge growth in online services has meant that time and efficiency benefits have been created all the way along the mortgage supply chain. Online should mean that lenders can supply small brokers with a very good standard of service.
Smaller brokers obviously have enough on their plates coping with compliance matters and the general pressures of business, without the online rug being pulled from beneath their feet. It is important that brokers wanting to apply for direct authorisation have a range of options available to them.
Mountney: Possibly. The lender's reaction is based on a combination of risk and volume and there are the continuing rumblings that principal (network) panels will control penetration.
But no one yet knows what the actual appointed representative/directly authorised/introducer split will be, so the lenders should not close out the small person yet.
Smith: Whether or not Alliance & Leicester is really taking this approach, the debate has perhaps brought to the surface the issue of how regulation may impact on the market.
Would it be unreasonable for lenders to want to deal with firms with good comp-liance infrastructure and significant scale? Lenders will be facing demands on their resources like everyone else and may want to set some parameters around who they do business with. As many commentators have already said, regulation may place pressure both on smaller lenders and on smaller intermediaries.
Colin Barrett,senior product manager, BM Solutions
Mark Mountney,managing director, Premier Mortgage Management
Stephen Smith, director, housing marketing, Legal & General