Is the FSA’s regulatory regime working across all parts of the mortgage market after it gave itself a pat on the back for the way it has handled the prime market? Lakey: Most commentators would agree that the previous mortgage code was working well and needed little adjustment. Equally, it does make sense to have the entire advice process regulated by one body rather than disparate competing bodies.The FSA irritates by making sweeping statements using small amounts of data arising from thematic mystery shopping. Also, it usually fails to distinguish between IFAs, tied advisers and bancassurers. King: I think the FSA needs to justify its existence in order to continue to bombard us with the amount of rules and regulations we have to abide by and the extortionate charges we are expected to pay each year. The public are not idiots who need this constant hand-holding. In my experience, they are intelligent and informed and expect an excellent service and good advice – otherwise they will go elsewhere. My clients have never made a point of telling me how wonderful they think the FSA are – many actually have no idea who they are. Pendergast: We have had no problems with the new mortgage regulations as we are a full-service IFA and are used to the procedures. The FSA regulation regime seems to be running smoothly as far as we can see. What impact do you think a rate rise to 5 per cent, as has been widely predicted for November, will have on the market? Lakey: I believe that property prices will stabilise until such time as it becomes clear whether further increases are likely. Such a rise is likely to increase repossessions, arrears and other credit-linked financial woes. There has already been increases to all of these during the first half of 2006 without factoring in the August rate rise. Those who have been in the property market some years will be aware that even a 5 per cent rate is historically low. King: I think it will make little difference to customers actively looking to purchase – this has been rumoured for some time now and I think many purchasers will have already factored this possibility into their calculations. Purchasers who have secured good fixed rates may have the option to port their loan to a new property and so will not be affected. Pendergast: Very little – rates are still low compared with historic rates and borrowers will still proceed if they want a house. Remortgage business may suffer a little as two-year rates expire and new rates are more expensive, but overall I cannot see a massive affect on mortgage volumes Is the sub-prime market under threat if there is an economic shock or recession, given the high numbers of people in arrears? Lakey: The market is likely to increase because of the impact of rate rises on borrowers who are currently prime. It is also very likely that those existing sub-prime borrowers will feel the impact more acutely than the typical borrower. If rates rise and property values fall then more borrowers will be pushed into the sub-prime market because of loan-to-value considerations. King: Increasing numbers of customers are now falling into the sub-prime bracket and I think this area will grow rather than contract. If there is a recession, then I think the entire market will suffer, including all sectors. Pendergast: The sub-prime market is more likely to benefit from a recession as more individuals may fall into problems with their existing mortgages and may need a sub-prime lifeboat to help them out. Are proc fees in the heavy adverse end too high, and do they encourage commission bias, as has been suggested this month by Michael Bolton? Lakey: They do seem to be higher than is necessary although it is true that not only does sub-prime take longer to source but, additionally, these cases are less robust and customers often play one adviser against another. But having vast differences in proc fees does allow consumerists to charge the industry with profiteering and receiving fat fees. King: I agree that fees in this area are too high. Looking at the lending criteria, they are clearly aiming to lend to people who should not be allowed anywhere near a mortgage. I would like to think that advisers would not be tempted and I am avoiding this area altogether as I am nervous of future mis-selling accusations if these customers cannot service the high rates being levied. Pendergast: They only encourage commission bias where advisers use heavy adverse products when there are better products available. I do not see a reason for higher proc fees for adverse products – a mortgage is a mortgage and proc fees should be standardised throughout the provider and product range to ensure consumers can rely on advice without commission bias. Do you think equity release providers will start to ignore the intermediary market as there are so few advisers in it, as has been suggested by a number of commen-tators recently? Lakey: They will do so at their peril. Equity release is no different from any other product, in that independent advice is essential. Arguably, it is more essential in this market because of the age and nature of the applicants. Many providers do not have the brand value or high street presence to command the comfort that most applicants would require. King: I think that many advisers are still unsure of this market and, although I hold the necessary qualification, I feel that more training and a more in-depth understanding of the product and its ramifications are necessary before this can be recommended with confidence. If providers could assist with the training of advisers and prove that the product is sound, then I feel this market could expand. Pendergast: If the level of business does not rise then this may occur. From our point of view we get very few enquiries for equity release products, despite having a CF7 adviser available. It is not an area we actively market – I think many advisers are scared off by the potential for complaints from disenfranchised beneficiaries. Is the AR model in decline after one network fell into administration in August and others are rumoured to be in trouble? Lakey: I believe that the entire system of networks is in terminal decline. There are too many negatives such as networks crashing and the advisers income being lost, or the added administrative layer that networks usually apply on top of FSA rules and principles. I believe that the majority of forward-thinking advisers will realise that direct authorisation is the only long-term route. King: I agree with this, having first-hand experience of networks. They appear to have an insatiable appetite for funding for various administrators and managers and are not cost-efficient. Unfortunately, it is the advisers who ultimately foot the bill. When our firm switched to being directly authorised the financial advantages became apparent almost instantly. We would never return to a network environment. Pendergast: Depends on the network. If they offer a good service, advisers with be happy to link up with them. We use pi financial Dixon Sutcliffe, which is a grouping of advisers rather than a network. They offer an excellent service that is flexible and cost-effective – this could be the way to go for the “networks” of the future.