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Safe and secure?

Our panel of experts discuss secured loans, fraud and the role of Ship in equity release

Should mortgage brokers be getting involved in the secured loan market, given that some commentators think such moves are akin to “swimming in the sewer for business”?

Kidd: I think a majority of brokers maybe already are or have access to people who can deal with these types of problems. I totally disagree with the assumption that it is “sewer business” as there is a place for these types of product in the marketplace. That said, it should be with a reputable and regulated firm and adequate research should be done to make sure that the client is getting a decent rate/APR and that it meets their needs.

Lakey: Some organisations are still marauding through the financial landscape but it is perhaps not too different from sourcing the sub-prime market. A secured loan may be the only option available so adviser diligence can ensure a worthwhile rate and reasonable terms.

Batterbee: I can see a rationale for people to get involved with this type of business. I tried to get involved with a further advance with a mainstream lender because of the way we charge our clients [annual fee] and because they expect us to do the work, only to be told: “We don’t speak to IFAs on this type of business.”

For something akin to the above, it is a requirement rather than a choice. If it is simply a way to charge people who are already in debt money to consolidate, then I agree that it is a low-rent market.

Do you believe there is a problem with fraud in the broker market after the FSA urged lenders to my report any fraudulent intermediary activities

Kidd: This is nothing new. When I worked for Abbey, they had an interbal fraud team that were alerted to cases that were strange or had been flagged in some way. There will always be abusers of the systems and the mortgage market is no different and can manipulated, so I like the FSA coming out and saying this, as it is a reminder to everyone dealing in the market that lenders should lend responsibly. This is also a promt on self-cert mortgages, which came to attention of everyone again a few months ago.

Lakey: There will always be elements of fraud – over-valuing property, overstating income and, in some cases, identity fraud. There are internet companies selling pay slips, P60s, driving licences, passports and, for 1,000, a complete identity makeover. Clearly, this raises issues for lenders and advisers will be concerned to avoid the potential grief involved. How this can be avoided, given the futile money-laundering regulations, is another matter. No adviser wants to be tainted by association but it is sure to happen at some stage.

Batterbee: As a rule, no, I do not think that as an industry we have a problem. There will always be problems with clients being selective with the information provided. For old-model businesses, it must be a difficult decision to have to look at a piece of business and turn it away, because you know in your heart it is not right. Luckily, we do not have that dilemma.

According to the Association of Mortgage Intermediaries, more and more advisers are getting involved in commercial and overseas mortgages. Do you think this market is set to grow considerably?

Kidd: I think it is a fair reflection of current market conditions and it may increase as people are looking for other ways and asset classes to invest in, commercial primarily, I would have thought, for Sipps and overseas property, as it is generally cheaper to buy and better yielding. These also offer diversification if you are already an investor in bricks and mortar. As long as the returns are there, people will continue to put money to work in these areas. The overseas market also represents investment/ lifestyle choices for clients.

Lakey: The banks have long held sway in commercial lending and have been able to exert commercial pressures, subtle or otherwise, on their clients. New lenders have been moving into this sector, focusing on adviser-generated business and involving advisers in what has often been a somewhat secretive process. This has generated greater adviser interest.

Similarly, lenders are more open to foreign property purchase, enabling a wider range of opportu-nities for advisers.

Batterbee: As an industry, we have always been resilient and quick to react to opportunities. More clients are buying abroad, seeing their investment – rightly or wrongly – as being more secure than other investments. Commercial mortgages often lead to other business and have always had a shroud of secrecy around them. It is good to see lenders helping to shake that off. The mainstream banks and finance brokers have had a good run here and it was only a matter of time before people made the decision that they want their IFA to take care of all their needs, both personal and commercial.

>What part does Ship have to play in the equity-release market, given that the FSA will soon regulate home reversions and that many have questioned Ship’s authority?</b

Kidd: I feel they could be likened to the National Association of Estate Agents or the old mortgage code – that is, voluntary. It is not something you have to do. I think it offers very limited protection as it is not a true reflection of the whole market.

Lakey: Ship has been responsible for revitalising the market after the unwelcome publicity of the 1980s’ sales techniques. The Ship name is seen as a benchmark, conferring acceptable design standards and confidence.

FSA regulation should not be allowed to detract from the important work of consumer-friendly badging that Ship has conceived.
The FSA has a duty to promote financial education and market confidence but few would argue that they have an outstanding record of success in either area and, in any event, it does not mean that industry initiatives become redundant once they become involved.

Batterbee: Over the years, Ship have worked tirelessly to improve the quality of offering and advice in this very emotive market. That said, it is about time the FSA stepped in and actually issued guidance and leadership in consultation with the Government and old-age charities.

IFAs are often asked to come up with solutions to all manner of problems in this area. What we need to know is exactly the process that the FSA requires us to follow. With this established, the market will flourish and the quality and surety of advice will increase.

What do you think of TMB managing director Nigel Payne’s outburst, telling those that had predicted the death of packagers that they were wrong, and insisting that pack-agers are continuing to flourish?

Kidd: I believe that everyone is entitled to an opinion. I think it is too early to judge really, but the market seems to be in good shape in terms of business levels. You would generally use a packager for sub-prime cases as they may have in-house underwriters or exclusives and if their business is up, then it also signals that the market is not in good shape credit-wise as more and more clients are of an adverse nature.

Lakey: New packagers seem to spring forth like crane flies in September. The logic of assisting and using them, from a lender’s perspective, remains in doubt. Some packagers, such as Pink Home Loans, clearly add value with their wide range of lenders, exclusive products and knowledgeable and friendly staff. Others seem to be pale imitations, providing a middle-man service where none is needed and without adding any discernible value.

The concept of a pure packager-only service seems redundant. Why should a lender pay a sizeable procuration/packaging fee for an administration service which is often carried out by the adviser?

Paying higher procuration fees to the adviser and allowing him to semi-package – arrange valuations and credit-score – would increase profits both for lenders and adviser. Any lender relying on a packager to sell its mortgages must have a woeful product range.

Batterbee: Packagers have a place and some are excellent. The problem is that the quality of their service fluctuates wildly, even within each company. I have had dealings with a very big packager recently and it was like pulling teeth. Half the problems come from them not being strong enough in the first place and saying yes to everything. If they told us what was required and managed expectations from the outset then people would be much happier.

Has Pink’s campaign, along with similar moves to boost sub-prime business and end dodgy practices, seen brokers returning to the market?

Kidd: The sub-prime market is extremely lucrative for participants and again, as above, I would say that brokers are only returning if clients are becoming a higher credit risk, thus boosting this area of the market.

Just as we are seeing higher levels of indebtedness and bankruptcy, if this area of mortgages is surging forward, the bubble could be waiting to burst big time.

Lakey: I must confess that I am unaware of brokers defecting from the sub-prime market. Adverse sourcing is not too different from normal sourcing. Ultimately, it is the adviser’s selection skill that earns the procuration fee and subsequent client retention.

Pink’s campaign is welcome as there remains a taint to the sub-prime market, partly due to the higher procuration fees and partly because the household-name lenders have traditionally remained aloof, leaving the field open to specialist lenders – some unknown and some unsavoury.

Batterbee: There is sub-prime, and sub-prime. The range of products available now is immense and the quality and flexibility has improved hugely.

I am certain that many people were put off by the names of companies which they had heard stories about over shocking redemptions and high rates. The products around now make it much easier to get back on the ladder and that can only help the market.

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