Last year, my partner and I did something pretty stupid – we went and bought ourselves a house. Or at least, with the property market in freefall, as it was at the time, our decision might be considered stupid by some people.
In reality, it wasn’t such a daft idea. We had sold our previous place and had been squatting in my mother-in-law’s house for many months by the time we saw something we liked, plus I was able to negotiate a few quid off the asking price. Even so, the purchase was fairly nerve-wracking – as was the process of obtaining a mortgage.
In the past, we have used the services of an independent mortgage broker. When we took out an Intelligent Finance mortgage on our old home years ago, we not only got a good deal but our broker also received a small percentage-based proc fee.
But when I rang him up last year, he was both apologetic and honest enough to tell me that he couldn’t help. “Truth is, none of the deals you qualify for as a self-employed person are as good right now as those you can get by going directly to a lender.”
He was right. We were looking for a fixed-rate offset mortgage and in the end the best three-year deal came from First Direct. Its most attractive feature, given how much we were borrowing and the timeframe chose to pay the mortgage off, was that it came with just a £99 completion fee. The brutal reality was that, when I called my old mortgage broker to see if there was any way he could match the deal, he was unable to.
Too many mortgage advisers were primarily there to make dreams come true for large numbers of people who, with hindsight, were never suited to be homeowners
Why raise the issue now? Mainly because reports increasingly suggest that more and more lenders are choosing to bypass intermediaries by offering their best mortgages direct to customers.
Some brokers, as Money Marketing reported last week, are responding by offering a whole-of-market analysis to their prospective customers but charging a token fee where they are unable to source a better mortgage than one offered direct by a lender.
Now, that is a good temporary tactic but, in the long run, such a strategy is unsustainable. People are generally willing to pay for advice that is coupled with an adviser doing something that allows them to feel they have moved one or more stages further along the path towards meeting their needs.
But asking a borrower to stump up a hundred quid or more for advice from a professional, only to tell him that he should go somewhere else for his homeloan – and no, you can’t help progress his application – will always look odd. Besides, as Money Marketing said, there could be adverse regulatory implications for advisers if they do not have all the facts needed to make a recommendation.
The most important question, however, is why such a move to direct-only mortgages is taking place and what can be done about it?
All sorts of reasons have been given for this state of affairs. I spoke to a mortgage specialist at one big bank and his excuse was that past experience showed many of the applications forwarded to his team by intermediaries involved cases that were simply not suitable, with borrowers not meeting the criteria required for specific deals. “We might have been willing to take a risk on some of these cases in the past but nowadays it is just not worth the hassle,” was his line.
The second reason was that past practice showed that many of the applications from brokers were poorly completed, with forms badly filled in, wasting hours of the bank’s time sorting things out or requesting further clarification. By contrast, dealing directly with customers saved hours of time, avoided paying large commission and enabled his bank to offer more competitive deals.
Oddly, he did not give me the third key reason, which is that if you flog a mortgage directly to a punter you also get the chance to sell home and contents insurance, as well as term cover and a raft of other products.
The biggest worry for those like me, who want to see consumers getting good independent advice for all the products they buy, is why does there appear to be such indifference to the fact that, in the past two or three years, mortgage intermediation appears to be disappearing?
Probably because for most of the past decade, too many mortgage advisers were primarily there to make dreams come true for large numbers of people who, with hindsight, were never suited to be homeowners.
When the bubble burst, that part of the market collapsed and lenders found they no longer needed to cater for the remaining minority of applications from brokers.
Meanwhile, the regulator – which spent most of the past decade ignoring the actions of dodgy brokers – is now fining and expelling scores of mortgage advisers for rule breaches in relation to past dodgy loan applications. Too late – mortgage broking as a profession has been almost irrevocably tainted by the actions of a minority.
What has happened to the mortgage market ought to be a powerful lesson to IFAs who want less regulation of their side of the industry but will they learn?