As often as not, I am accused of being naive and not understanding the industry correctly, all of which may well be true. The reason for saying this is that I am concerned that on this occasion too there may be a barrage of comments from practitioners telling me that I have got it wrong and do not know what I am talking about. All the more so, as Money Marketing has made it clear that what I am about to criticise has its own full-hearted support. But you know me, so here goes.
I think the open letter from UK mortgage distributors asking brokers to “understand and make allowances for the huge strain the credit crunch is placing on lenders” is a disgrace.
The full text of the letter, sent out to mortgage intermediaries by Premier Mortgage Service, Sesame, Openwork, Pink Home Loans, Personal Touch Financial Services, Legal & General Mortgage Club and Home of Choice, was published in the paper last week.
The letter states brokers are wrong to accuse lenders of acting irresponsibly and breaking the requirements of the FSA’s treating customers fairly regime by withdrawing products at short notice.
It says: “This action by the lenders in our opinion does not constitute part of treating customers fairly regime but more a commercial decision to protect their own liquidity position in keeping with running their business in a commercially sound way.”
Now, as it happens, I have indirect experience of how mortgage lenders are currently operating. A friend of mine was coming to the end of a two-year buy-to-let mortgage deal in January.
He is not a typical investor as such. He currently rents out two properties inherited on the death of his parents and his uncle. The LTV is a mere 15 per cent of the two combined homes and he is able to live comfortably from his work income, plus that received from both properties after all mortgage and other costs are taken into account.
In November, my friend was contacted by his mortgage broker pointing out that the deal was coming to an end and asking him to contact the broker to discuss a new one.
When he did, it became apparent that whatever new deal might materialise, it would be priced significantly higher than what he has been paying to date. In other words, his income would drop.
As it happens, this is not a big issue for my mate. He knows there are different ways of reducing monthly mortgage payments, for example, by lengthening the repayment period, so that if he really wanted to maintain his income stream in the short term, he could. In any event, he lives frugally and is able to accommodate such a change in his total earnings.
So at the initial meeting in December, the broker came up with a new mortgage deal, my mate filled in the form and everything was set for it to take effect once the old one ended… until the lender pulled the offer for reasons clearly related to the present credit crunch.
Another deal was sought and found, unfortunately about £60 a month more expensive than the last one. Everything was set to go through until that lender also pulled that loan for similar reasons.
In mid-February, a third loan was put in its place at the same rate but with a much higher processing/ completion fee. Everything was supposed to go through by the end of March. At which point, the lender again pulled its product. To date, my mate has spent about £1,000 in valuation and other fees on his fruitless mortgage applications.
Now, all this could be down to spectacular incompetence on the part of the mortgage broker. Alternatively, it may simply be terrible luck. But I cannot help feeling that part of it is lenders changing their lending criteria on the basis of knee-jerk reactions that have little or nothing to do with the credit rating of would-be borrowers. In essence, they are panicking for no good reason – and people like my mate are getting it in the neck.
In his case, it is not the end of the world. As I said, he can afford to take a hit.
The fact remains, however, that there are sections of the homeloans industry which are using the credit crunch to justify increasingly shabby behaviour towards their borrowers.
Instead of acting as the compliant dupes of lenders, distributors would better serve brokers by ensuring a proper code of conduct is in place to ensure that when a mortgage offer is made in writing it is not pulled on a whim. It is called treating customers fairly, something distributors appear to be joining lenders in losing sight of.
Nic Cicutti can be contacted at firstname.lastname@example.org