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Is direct the way forward?

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?


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There are 25 comments at the moment, we would love to hear your opinion too.

  1. Hmmmmmmmmmmmmm

    So you have to be suited for home ownership now?

    “But asking a borrower to stump up a hundred quid or more for advice from a professional”

    Yes Nick the word is Profesional

    Not sure if I can really take this article seriously when the writer calls himself stupid for buying a HOME.

    Yes, thats right, for many its a HOME not a house and should people be able to get PROFESSIONAL advice?

  2. I still believe people need assistance.
    Yes, there will be products offered directly but they have been around for years.
    Lenders need to watch. They also offer current accounts savings etc.
    I would move my bank accounts and savings accounts to lenders that support brokers.
    Why would I remain with a bank that is trying to ruin my livelyhood??

  3. Sound like a very senior contact with his finger on the pulse, your mortgage expert at the bank!

    The barely trained unqualified individuals posing as advisers at most banks don’t even know their own lending criteria half the time. I don’t think many mortgage brokers can believe that the majority of lenders get better quality applications from their own staff. I regulalry seem to be picking up the pieces of a poorly conducted failed bank application. Direct to bank also seems to be the only route for people to obtain a true ‘self certifed’ mortgage application these days as well…

  4. independent advice means you can give value to clients by searching the market direct and indirect if your independent why not and be paid for that service after all the exams knowledge. if clients want to do there own mortgage
    let them lot of people do home diy some very well some badly.
    If client want professional advice to get the best deal then provide it and expect to get paid .after all you pay the plumber electrician estate agent solicitor can see the problem i believe i give value to my clients and am worth every penny i charge give them the best products on mortgage protection ect .

  5. Anthony Dowsett 6th August 2010 at 2:06 pm

    Yep, if you want a self cert mortgage, or should I say a dodgy mortgage as “Nic” calls them, then send your clients direct to Santander, clients whho came to me have recently managed to get a mortgage at a Santander branch and was told not to worry if they couldnt supply bank statements and payslips, they wouldnt be required. The clients were so impressed that they sent the brother along for his self cert mortgage.

  6. Michelle Stevens 6th August 2010 at 2:13 pm

    It’s when I read articles such as this, I wish I had a gas oven rather than an electric one!

  7. Possibly the worst column I gave ever seen written. I am surprised it was printed. A (loyal) broker and a disloyal client! When there are no good brokers left, the next mortgage he gets will be expensive as we will not be there to police them and banks / lenders will have a field day charging what they will.

  8. Nic that’s a little naiive for someone who has been commenting on this industry for so long.
    It’s got nothing to do with form filling and everything to do with market conditions.
    Think of a lender as a factory.
    In the boom times their factories were operating at 100% capacity and the easiest ways to deal with growing their market share quickly and cost effectively was by using brokers- sub contracting.
    Now we find ourselves in leaner times and the lenders’ sales factories are operating at 50% capacity. Until they get back to 100% capacity and need to compete again they will concentrate all their efforts on getting punters through their doors and that means offering deals direct that are not available via brokers and having the time to sell the high margin, expensive protection and general insurance products that help plump the profits.
    That’s why! At the moment they don’t need brokers ….and it’s nothing to do with form filling.
    Finally, if you really do not understand why the volumes of brokers has decreased and this is not just a journo cheap shot to close your article then let me suggest a reason.
    Boom times = lots of brokers
    Lean times = fewer brokers
    Trust that’s a little clearer for you now!!

  9. “Possibly the worst column I have ever seen written” …. I could not agree more.

    Nic Cicutti, you are not guilty of being “pretty stupid” for buying a house because there are numerous factors to take in to consideration (including whether to continue living at the mother-in-laws !!) besides the worry of buying during a “property freefall” !!

    However your EX professional adviser sounds like he is guilty and has abdicated all responsibility for his clients’ and their mortgage requirements. Just because most of the best deals are direct only does not mean he cannot offer you a professional service (and charge a fee accordingly) and still help you through the “nerve-wracking … process of obtaining a mortgage”. After over 20 years of being in this business the one thing that keeps cropping up is the requirement to contact most companies, be they Mortgage lenders, Insurance companies, etc (and also, for example, your utility companies gas, electric etc.) and find the lack of employee training results in me politely instructing them how to do their job !! Sometimes you think you are talking to the trainee cleaner !!
    Is it worth a Client paying a nominal fee for the Professional to liase with all of the parties to take the stress away from the Client ?

    With regard to your comment “… large number of people .. never suited to homeownership” – this is a very interesting comment – where are your facts to back this up ?

    And your comment regarding “.. the regulator …. ignoring the actions of dodgy brokers” suggest the ills of the mortgage market can be best served by having only Direct mortgage deals from those whiter than white Banks – those same banks that have gorged on the sales of all types of credit including loans, credit cards and overdrafts at extremely fair cost (NOT) to the customer – how many of those customers were “not suited” – it seems the computer always says YES !!

  10. Honestly, it’s been a long week, I’m a little tired and looking forward to the weekend – I don’t think I have the energy to invest in a worthwhile comment…

    Ah, got it – exactly how Nic must have been feeling when he wrote this (we all feel lazy sometimes)…

    Damn deadlines, eh Nic?

  11. He wrote the article delibratly trying to get a reaction! Its Jo Bloggs who will loose out!

  12. I’m intrigued by some of the replies to this column. First off, Swanny, yes I know it’s a HOME, otherwise I wouldn’t have bought it, you silly-billy.

    Second, I agree that many clients need professional advice on mortgages as with most other financial products. In my case, however, the adviser told me that given my personal circumstances as he understood them First Direct’s deal was the best available. Free, dispassionate and pithy advice from someone I’ve known for 20 years, advice I’d have paid for if he’d asked for but he didn’t. What’s wrong with that?

    By the way, the application process itself was remarkably simple even for a financial journalist. I don’t see what the point is of criticising the broker for his words to me or me for going it alone.

    Now to the meat of some reactions to what I wrote: if that’s “provably the worst column I have ever seen written,” as one of my anonymous commenters believes, thatr’s astonishing hyperbole and he really should stick with The Beano.

    The plain facts are that scores of mortgage brokers have in the past two or three years been hammered by the FSA for a range of “offences” that usually included falsifying mortgage applications on behalf of their customers.

    Meanwhile, in the past two to three years, tens of thousands of homeowners have been evicted for being unable to pay their loans and hundreds of thousands more are at least three months in arrears. Were it not for the fact that base rates are at a historically low level, while lenders have desperately tried to avoid turfing people out of their properties and bumping up repossession figures, those numbers would be infinitely higher.

    THAT’s why, Anthon Fallon, I wrote that “large numbers of people were never suited to homeownership”: their lack of a decent income cincomes and borrowing ratios demonstrated this quite clearly and I’m amazed you don’t see it.

    The final point I was making was that in my opinion – but also that of other experts working in the mortgage industry I have spoken to – brokers have traditionally been among the lightest-regulated sector of financial services, for all sorts of reasons that are too complicated to discuss here.

    I therefore concluded that the majority of good, professional mortgage advisers have been tarred by the actions of a minority. In turn this means that at a time when brokers who are still trying to earn an ethical crust are facing an unparalleled attack on their ability to intermediate successfully, they face a loss of support from the public, consumer groups and the media more generally.

    The lesson I draw from it is that if regulation had been strict enough to weed out some of those dodgy brokers before the financial crisis hit, thereby preventing some of their inept clients from obtaining loans they couldn’t repay and subsequently finding themselves in near-terminal financial difficulties, the industry (and the economy) as a whole would have been better off.

    Is that such an outrageous argument to make? I dunno, maybe it is. Alternatively, my final respondent – typically anonymous, as all cowards are – finds it so yawn-inducing that he can’t even be bothered to reply to it. That’s his privilege, but he shouldn’t assume deadlines played a part in what I wrote, given that I wrote it at the weekend and was able to indulge myself while doing so. The beauty of being a freelance journalist, I find.

  13. Peter Davies @ Create Wealth Management 8th August 2010 at 8:18 pm

    Nic Cicutti, I’ve got to say that is a dreadful article as most of the above comments allude to. Please feel free to contact me if you wish to expand on this story and gain a more in depth view of the cuurent issues surrounding direct mortgages from a firm who for some time have been adopting a whole of market independent mortgage advice service.

  14. I can’t see what people are getting so wound up on.
    Theres nothing in this article that isn’t correct.

  15. How anyone can call this the worst article is beyond me.

    However, Nic, there is one area you are not so correct on and that involves customers being charged a fee “only to be told they have to go somewhere else… is odd”.

    Look, we all know why the mortgage game is over for most floggers and Nic is right. These poorly qualified commission based salesmen just wanted to get deals done. So yes they raised the customer’s expectations and submitted some exaggerated applications. No wonder the public has a lack of respect for the flaws of a few.

    But when brokers or advisers or even journalists begin to understand that each qualified adviser SHOULD charge for advice, then implementation, you will begin to see a profession developing.

    Nic, all credit for your decent honest broker who said the best deals at present are direct, and real advisers would charge you for finding out the best product and then guiding you through its application. If you don’t want to pay for that, thats your prerogative. If only these poorly qualified salesmen began to think that way and charge for their knowledge and experience they would have a loyal client base who trust their impartiality. If people don’t respect you enough to pay for your knowledge, they are simply not worth it.

    Let this be a good example on why commission doesn’t breed loyalty, rather product flogging.

  16. There is another potentially quite worrying consequence of more of the mortgage market going direct. It could lead to lots of mortgage brokers ‘dabbling’ in the areas of investment and retirement (pensions) advice, to supplement the income they can no longer generate from mortgage advice.

    Whilst the RDR will ensure that, from 2013 at least, advisers in these markets are suitably qualified, there is a real danger that lots of ‘advisers’ with minimal relevant experience and only entry level qualifications will play in this space between now and then.

  17. Totally agree with Martin. I know at least one Mortgager who is advertising unregulated investments with wild promises of returns and guarantees (he also points out they are avalible to pensions). There needs to be robust guidlines which regulate advice not the product therefore this would not be avaliable.

  18. Harry, allow me to correct you on a few points:

    1) I have no problem paying a fee or a commission to someone who gives me advice. The precise form any remuneration takes is ffor mutual discussion and agreement.

    2) If you want to charge a fee for steering a client towards a direct-only mortgage, that’s up to you. If your client pays the fee, hats off to you, that’s great, especially if you do a lot of the initial research.

    3) In my case, the situation was different. When I was looking for a mortgage, I did what many punters do, created a list of things we needed from a mortgage (low rate, security, no overhang, flexibility, no application fee etc), then went on to several comparison sites – Moneyfacts, Moneysupermarket, John Charcol – did a few mortgage searches there, looked at the terms of various mortgages, did my sums, looked at a few more loans, did a few more sums and then went to my mortgage broker and said: “This looks like the best deal for us in the circumstances, do you agree or have you got anything up your sleeve?”.

    My broker called me back in 20 minutes and said: “Nah, you’ve got it more or less right and we haven’t got anything up our sleeve.” End of discussion. Had he said: “By the way, my fee for a quick check on your behalf is £100”, I’d have given him the money. I’m not mean. But we’ve known each other for many years, I’m sure he will make money from me some time and maybe I can do him a favour some time.

    On the substance of the article, I stick to my key points – which, incidentally, one or two people are clearly starting to admit to in later contributions: there was too much flogging of mortgages to punters who couldn’t afford them. It included falsifying information on mortgage applications. It has tarred the reputation of mortgage brokers generally, who subsequently find themselves wth less friends than many deserve.

    I ask again: is this argument REALLY so outrageous? Am I REALLY just saying it to try and and get a rise form some of you? Could there be just a SMIDGEON of truth in what I’m saying? If there is, does it make sense to engage with the argument or just tell me that I’m talking complete rubbish?

    Over to you….

  19. Sorry Nick but your comments are ludicrous.

    What you are effectively saying is that I should refuse to pay the plumber when he services my boiler and confirms that nothing needs replacing, or a Dr shouldnt be paid when a patient goes for a check up and is told there is nothing wrong with them and no further action is required.

    On a serious note what happens if someone comes to me for advice on a pension for example. Should I take the chance that it may or may not be in their best interests to transfer elsewhere when I will charge them a fee or should I charge them a fee for reviewing the pension before taking any action irrespective of whether I tell them to leave it where it is or not.

    Just like supermarkets lenders are trying to drive independent advice out of the market place after which prices will go up once they have built a monopoly. It is the borrowers who will pay in the end when they ‘buy’ mortgages that arent suitable for them.

  20. Nic, thanks for clarifying those points which I understand completely. It is also a great example of what many people are now doing. You know, doctors complain that patients come to them now knowing their medical diagnosis and the prognosis! Why? Wikipedia!

    It is good that you did you own research. Many people have the access, knowledge and the inclination to research the net and get a feeler for what might be best for them. That is why the Bamfords of this world say the net is the greatest threat, as well as opportunity going.

    I’ve found that mostly those with heavy workloads simply don’t have the time to be doing all the work and will happily pay an adviser for finding out, then arranging a recommendation.

    Is it any wonder then that these poorly qualified salesmen struggle to get that concept and insist on asking stupid questions like “should I charge for pension advice and suggest stay put”

    Is it due to a lack of education that so many people are just plain daft when it comes to running a professional business?

  21. I can see both sides of this, or is it a multitude of opinions? Whatever… Nic I am disappointed with your article this week, it lacks balance.

    I used to spend time persuading some people NOT to buy that dilapidated house, or their council house, or that second home, or that ‘investment property’ but people, or is it ‘consumers’?, have been brainwashed into thinking that bricks and mortar is a sure thing, the golden path to riches, not just a HOME.

    With some people there is no method of persuasion which works, short of a frontal lobotomy, so the ‘adviser’ is tasked with finding the key to the front door and that means any mortgage or loan or combination of both (Northern Rock) and the ‘consumer’ doesn’t care how it is achieved and nor do the lenders if the last few years is anything to go by. Most of them think there is a ‘guarantee’ somewhere in the FOS/FSCS compensation machine.

    Nic, are you telling me that these ‘consumers’ had their arms twisted? Were they all forced into a house purchase they could not afford? Did they unwittingly sign forms containing fictitious incomes and employment details? Will the removal of intermediaries from the market improve the situation? What happens when the banks are once again awash with cash which is looking for a return at any cost?

    Yes there may be some examples of lousy advice but it isn’t always the ‘adviser’ who is at fault.

    Forgive me if I have lost the plot.

  22. Nic your Mother-in-Law must be a saint.

    I do hope you paid her some rent.

  23. @Sean: I never said that at all. I specifically said I was prepared to pay my broker. If he’d have wanted payment, no problem, I’d have paid him. He chose not to ask for it. equally, he knows I’ll see him right.
    @ harry: I know what you mean about the curse of Wikipedia. Of course, it can also make for better-informed clients. Interestingly, there is research showing some areas of the medical profession are increasingly seeing “self-taught experts” in a positive light, largely because it turns them into “active participants” with regard to improving their own health and not passive spectators. The key challenge then becomes one of how to manage the patient/client’s knowledge & expectations, to update their knowledge and disabuse them of erroneous information.
    This involves learning a new set of skills for many doctors and nurses, but mastering it can produce positive results. Sadly, it is far too complicated an issue to dicuss here, but there are some very interesting projects in this area currently taking place in the NHS.
    @ Evan: I’ve previously said about mortgage brokers that in many cases they did nothing worse than try to meet their clients’ desire to own their own home, so I know what you are talking about. I have said – on record in MM – that many borrowers need to accept their share of the blame for putting brokers in that position.
    Unfortunately, in meeting those demands some brokers also created enormous difficulties for a number of borrowers who should never have tried to buy. Sometimes it is best to say no. Oddly enough, I know whereof I speak: a few years ago I was asked to audition for a TV series in which I would have been a “financial trainer” helping people to meet certain financial goals.
    Each episode would have looked at a problem and how it could be sorted over the medium to long-term. My audition “case” was a young woman who, together with her boyfriend wanted to buy a house, largely because all her friends were doing it and she knew that she could get a mortgage with an impossibly high LTV and almost no deposit.
    I looked at the couple’s finances – earnings, spending and credit card debts and told them (on film and in front of camera) that I thought they would be bonkers to try and buy a home because they couldn’t afford it and they either needed to keep renting or totally rein in their spending and live on bread and water for the next 10-15 years. Otherwise it wasn’t possible.
    It turned into the shortest audition of my life. So yes, sometimes you have to tell people some harsh truths.
    @Anne: We did indeed pay her rent. She was a saint, now passed away unfortunately.

  24. Nic,

    Can’t let your last comments rest. As this thread is now half way through a full fact find on you (sadly not yet your wife – who may be in receipt of some Inheritance now), I think you need to see a good IFA.

    Rather than be purely transactional in the adice sought a Holistic review of your finances could save you a lot of money.

    Nice article and no tongues in cheek.

  25. Nic’s additional comments AFTER the article balanced it up better. I agree with much of what Nic, Harry and Evan have said in the above.
    I am pleased to see that Nic would have paid had his friendly adviser asked. We do much the same and will reccomend direct deals to clients and quote a fee based on the amount of work and risk to us of doing this. In the past telling a client to go direct, we would have worked on a bit of a “swings and roundaboust, win some loose some£ and not charge, but for about the last 4 years we have charged a nominal fee if a client does their own research as Nic has done, simply to cover the risk of us confirming what they are doing IS our advice and then finding out the package wasn’t as we thought.
    I suspect Nic’s adviser will start doing the same in due course too as he is liable for teh advice he has given Nic, whether he helped implement it or not.
    I am qualified to advise on equity release and home reversions and yet I have NEVER arranegd a Home Reversion and on average do 1 equity release every 3 years as I spend more time explaining why peopel DON’T need to do what the direct sales and marketing has made them think they need. I also often end up doing the same with questioning why they want to do a Buy to Let or why they are buying a home in XYZ when their job means they will move again very soon and/or their job is very uncertain. Good advice should be as much about why NOT to do something as why to do it. We are primarily Investment and Pensions advisers and I have the MAW and Equity release paper simply to ensure I give an all round service of ADVICE to my clients and hence we don’t take on new clients if their first contact with us is because they want a mortgage unless they have been referred by family or friends as we are doing the family/friend a favour by speaking to them and NOT the prospective new client.
    The point is that if your main business was mortgages, it’s hard not to be on a teadmill of customer product sales as oppossed to client lifetime financial service. This is not a criticism of mortgage brokers, but is why a correct job title which explains what the individual does, i.e. broker of mortgages or INDEPENDANT Financial Adviser (the emphasis being on teh advice and independant) is so important and why tehre are flaws with mortgage only brokers who are independant calling themselves Independant Advisers (as it confuses the consumer), just as it confuses the consumer when Investment and Pension Intermediaries describe themselves as IFAs (both are allowed to under FSA rules). The RDR move to Independant and Restricted advice is an attempt to clarify this (which coudl result in more confusion) as it will hopefully help a consumer see more of what the restrictions are.

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