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Regulation hits home for brokers

Andrea Tryphonides looks back at a turbulent year on the mortgage front.

Regulation, court trials and celebrity mortgage brokers have been some of the key features in what has been a rollercoaster year for the industry.

Regulation certainly took its toll on the industry and has proven an unwelcome distraction for most brokers. Alliance & Leicester says a year on from M-Day, broker profitability is still lagging from pre-regulation times.

After interviewing 105 brokers, A&L found that 51 per cent are spending more time on maintaining business levels while 53 per cent of brokers cannot see any benefits that key facts documents can bring for consumers.

Head of intermediary mortgages Mehrdad Yousefi says: “One year on from regulation, maintaining levels of profitability remains challenging for many brokers. Our research has gone some way to track broker sentiment on regulation and indicates that more brokers believe that it has had a negative impacted the profitability of their business.”

The survey also found that 87 per cent of brokers are spending more time on compliance and administration while 77 per cent believe the extra cost of compliance has negatively affected their business.

Since the start of the year, when the general insurance industry also became regulated, there have been several mystery-shopping exercises conducted by the regulator, with most revealing disappointing results. In its latest effort, the FSA said it has kicked out more than 600 mortgage and general insurance firms since the start of regulation.

FSA spokesman Robin Gordon Walker says: “There has been a degree of bedding down this year but we have made it clear to the industry that the FSA has a robust authorisation process and it will take enforcement action against firms if and when it is appropriate.”

An FSA mystery-shopping exercise in May found a woeful lack of understanding on equity release . The regulator visited 42 firms and found 70 per cent of advisers were not gathering enough information about their customers before offering advice on equity release. The regulator found that once a lifetime mortgage has been sold, consumers are typically then being advised to invest some of the cash released in products that are not suitable for their needs and that may expose them to risk.

This did not hold back the equity-release market. Prudential launched its product with a focus on drawdown while Just Retirement and Retirement Plus brought hybrid products to the market. Norwich Union surprised the industry by entering into home reversion in April. It was criticised by Pru, which had recruited a substantial number of NU’s equity-release team, for entering into an unregulated market.

Chancellor Gordon Brown’s pre-Budget report revealed that Royal Assent to regulate home reversion could be granted by the end of the year, with formal regulation expected by the start of 2007. This should go some ways to appease many of the market’s critics.

Association of Mortgage Intermediaries director general Chris Cummings says the FSA had started to refer to equity release as “poison” back in May.

With new entrants coming into the equity-release sector, there were some surprise exits from niche markets. BM Solutions’ Michael Bolton and team left to join private equity firm Oakwood Group., while Bill Dudgeon left The Mortgage Business for Deutsche Bank.

American investment bank Morgan Stanley finally threw its hat into the ring, buying Advantage Home Loans this month. Also across the Atlantic, General Motors is shedding its commercial lending arm and rumours circulate over what will happen with GMAC-RFC, which reached top 10 lender status in the UK for gross mortgage lending this year.

The sub-prime market has had a bumper year. Several high-street names have been linked or have confirmed they will enter the market, including Cheltenham & Gloucester, Derbyshire Building Society and mortgage broker Savills Private Finance. Alliance & Leicester and First Active announced moves into buy to let.

Savills director Simon Jones says: “There are some lenders who deal with sub-prime quite well and others not so well so there is definitely an opportunity in the market for new entrants to be less restrictive on criteria in this sector.”

Riding on the back of the success of the niche markets has been the way to survive survival for packagers. There were predictions at the end of last year that packagers would soon be a thing of the past. However, Mortgages plc coined a new phrase in July – super-packager. This was a term for packagers that would dominate the industry and establish themselves as lenders or mortgage clubs.

The first-time buyer market had a rough ride. Bank of Ireland and Mortgage Express were both criticised for offering loans up to five times salary. The threshold for stamp duty was raised from 60,000 to 120,000 in the Budget and shared equity plans were given a boost in the pre-Budget report. But John Charcol senior technical manager Ray Boulger says: “The Government should be very proud of itself. Three lenders signing up to shared equity. Wow.”

Charcol rebranded in April and set up a strategic relationship with Hargreaves Lansdown. Hamptons International Mortgages created a similar relationship with Towry Law in September. Neither of the relation-ships was created because of the anticipated demand for property Sipps, but they must be wondering what the industry is going to do after the Chancellor knocked that on the head last week.

Paragon Mortgages chief executive John Heron says: “If they can do that to Sipps, why would they not do it to home information packs and pull the rug from underneath us for a second time?”

A firm date for the introduction of Hips has been set for June 1, 2007, much to the chagrin of the Council of Mortgage Lenders which warned the Government that a summer launch date could destabilise the market as sellers try to avoid the cost of Hips and sell before June.

The industry is optimistic that next year will be calmer but it awaits to see what will happen with Hips and whether the intermediary market has to reinvestigate its relationships with solicitor and accountancy firms to secure market share. The impact of Gordon Brown’s Sipp shock has yet to be measured.

Among the news stories that made you wonder if Jeremy Beadle was around, in September, Nick Hancock, the host of TV’s They Think It’s All Over, joined Earth Mortgages as sales and marketing director. Perhaps 2006 will see more celebrity arrivals in the glamorous mortgage business.

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