What do you think of FSA plans to force mortgage brokers to conduct a fact-find before offering rate quotes over the phone?
Clifford: It is highly questionable and a piece of bureaucracy which threatens to add cost, disjoint the advisory process and is unlikely to add any significant consumer benefit. Thoroughly assessing clients' needs and circumstances is, of course, critical but needs to be applied at the appropriate point in the buying process. Too early in the process will do more to frustrate, than protect, consumers.
Dudgeon: It depends on the level of service that is being offered. If it is an advised sale, then a full fact-find should be completed. If it is information on products from a restricted panel then a shorter and more concise form may be acceptable but it will still have to be prepared by an approved person.
Smith: There is a lot of lobbying going on about this proposal, with the Association of Mortgage Inter-mediaries in particular doing some good work. I believe a pragmatic solution will emerge that looks after the consumer interest and promotes best practice among intermediaries.
What do you think of Alliance & Leicester's recent announcement that it will take a cautious approach to lending in London and the South-east? Is this something that other lenders will start to do?
Clifford: It is possible but unlikely that other lenders will follow suit. I suspect that even A&L will reverse the policy as the market shifts. Perhaps only lenders which have taken an aggressive or even reckless attitude to lending and want to mitigate further risk would do so. Some lenders have suggested they will take a more cautious position, yet are known to be advancing four time income at 95 per cent.
Dudgeon: All lenders regularly review their lending policies and critically examine the performance of their mortgage portfolios and attempt to predict future losses.
It would appear that Alliance & Leicester has discovered a disturbing trend in their lending in London and the South-east that has led it to adopt a more cautious approach. Alternatively, it has concerns about the whole market in London and Southeast, perhaps a crash in prices.
TMB sources the majority of its business in this region and at present we are comfortable with the property market there which now seems to have more stability than in recent years although hot spots remain.
Other lenders may adopt a similar stance to Alliance & Leicester. However, they should be relying on their valuers and, in particular, comments on the nature of the area, up and coming, in a downturn, etc.
Smith: It is good occasionally to see a lender pausing for thought and thinking about its risk profile rather than just following the herd. I would not agree with the analysis that the property market is potentially running into problems in the South-east but I respect Alliance & Leicester's decision to do something a bit different in the market.
Do you think that all the companies which are announcing they will take principal status under mortgage regulation will be around in two years time?
Clifford: No. Hundreds of the stereotypical three-men-band brokers and even some of the big aggregators will fail to make the grade during the 18 months following M-Day.
The shift from guidance-based to the FSA rule-based regime is massive. Many of the networks are selling vapourware and do not have the capital or expertise to survive, yet many small brokers will foolishly join them in the interim.
Dudgeon: The first question that needs to be considered is whether or not those companies which have announced that they intend to apply to the FSA for principal status will actually have their applications accepted. Companies should not underestimate the amount of work that is required to apply and the costs of putting an acceptable proposition to the FSA. Staff will have to be recruited and trained and an appropriate compliance regime must be established.
Assuming that these companies get authorised, then their future success will depend on the attractiveness of their proposition to potential appointed representatives. Will the products on offer appeal to customers, both mortgages and general insurance? Will the compliance facilities provide comfort to their members? The survival of companies in the longer term will be driven more by business factors than regulation itself and there will undoubtedly be some drop off from those initially registering as principals.
Smith: No, they certainly will not be around. There are many people who are significantly underestimating the seriousness of taking responsibility as a “principal” and, in particular, underestimating the resources and systems they will need to run mortgage compliance properly for a network of appointed representatives.
Are you concerned by Imla's statistic that more than half (51 per cent) of mortgage intermediaries have no clear understanding of how mortgage regulation will affect them?
Clifford: It is a real issue. Depending upon your definition of clear understanding, the figure could be far higher than 51 per cent. One benchmark is the extent to which brokers failed to get qualified ahead of the MCCB deadline and how many brokers still fail to comply fully with the code. Only 25 per cent of brokers will cope with regulation on their own.
Dudgeon: Yes. Although the final rules are still to be published, intermediaries should be deciding now which post-regulatory model they will be adopting. There have been and will be roadshows this autumn run by principal firms and those who will be seeking principal status to attempt to recruit appointed representatives to their networks.
I believe that some of those who are not yet decided are waiting for clear-cut unbiased guidance on the final requirements and the pros and cons of directly authorised and appointed representative status.
Smith: Concerned yes, surprised no. The people who ought to be really concerned are those at the FSA who are charged with getting this industry into their regulation by next October. Surely now is the time for the FSA to produce some plain English publications, short and readable, that help intermediaries through the regulatory maze.
Do you think that house prices are stabilising?
Clifford: We are at a certain point in a well recognised cycle. Price levelling or nominal falls are highly peculiar to geographic hotspots and are largely a correction of extraordinary increases. Most areas continue to move forward steadily, even in the South-east. Clearly, the disproportionate jumps of 15 to 20 per cent are unlikely to be repeated in the foreseeable future but house prices are also most unlikely to remain static or fall.
Dudgeon: Yes, according to the indices produced by Halifax and Nationwide, the overall UK growth in house prices is moderating. However, comparing quarter two 2003 to quarter one, the decrease was only from 23.4 per cent to 21.9 per cent in the case of Halifax and a bigger fall in the Nationwide figures from 25.8 per cent to 21.1 per cent.
There was a more marked slowdown in the figures for Greater London and the South-east, balanced by increases in areas such as Yorkshire and Humberside, the North-west and the West Midlands where affordability is less stretched.
In the light of more buoyant than expected conditions, the CML now expect house price growth to average 18 per cent over the year and end the year on 10 per cent. Previous forecasts were 12 per cent and 7 per cent respectively.
Therefore, although the expected moderation in the housing market appears to be happening, which is to be welcomed, there will still be hotspots in certain areas where prices are racing ahead, driven by a lack of supply of suitable properties and other local factors.
Smith: Yes, but not going into reverse, as some scaremongers would have it. We see a soft landing for the market and continued steady sustainable growth.
Rob Clifford, chief executive, Mortgageforce
Bill Dudgeon,managing director, The Mortgage Business
Stephen Smith, director (housing marketing),Legal & General