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Ship sets a course

Our panel consider the prospects for new lender Edeus plus the Ship strategy for qualified advice only on equity release

What do you make of Michael Bolton’s new lender Edeus? Do you like the name and what do make of his claims that it will revolutionise the market in terms of speed of service?

Barrett: Yet another lender in the marketplace. Do we need more lenders? Is the market not overpopulated already? There are only so many types of mortgage you can offer and what can a new lender bring to the marketplace that is any different from what is available already?

I mean no slight upon Michael Bolton but I have heard it all before. Lenders will inevitably turn round cases quickly if the intermediary “packages” them correctly. If an intermediary knows what he/she is doing, I do not personally believe that turnround times are an issue, especially given the length of time the legalities often take.

As for the name. What is in a name? It is track record that is important and that will only come with time.

Rothery: At this stage, I need to do more research. The name does not grab me but nor did ours originally. I am in favour of anything which speeds up the service as it enhances the image with clients and advisers and, in sub-prime cases, days really can be vital. But the proof of the pudding will be in the eating so let us wait and see, but very welcome none the less.

Is the sub-prime market rife with abuses, such as backhanders, as Bolton claimed this month?

Barrett: I don’t know if the sub-prime market is rife with abuses. I do not see evidence of this. Any lender in the marketplace is, first and foremost, a business and it is imperative for any business to try to maximise income. Lenders will only do this is if they are lending money. Lenders on the periphery of the market need to be less officious in their requirements. That is something I do see evidence of.

Rothery: I think Mr Bolton greatly overstates this problem and it is very unfair to tar everyone with the same brush. The sub-prime market is different in so far as the clients are potentially more desperate than the prime market so it is possible that some nefarious activities occur at the margins but they are not “rife”. That is harsh and does no one in the industry any favours.

O’Connell: I am not aware that the market is rife with such instances, although clients who are paying very high rates that do not always seem to reflect their credit risk have approached me in the past.

But the number of companies rushing to enter the sub-prime market can only be a good thing for clients, as healthy competition will naturally drive down rates.

Although some sub-prime offerings seem extremely expensive in terms of rates and fees, there are some fantastic products that can be sourced, sometimes through packagers, where incentives such as free valuations and application fees are offered together with reasonable rates of interest.

Will Ship’s decision to ask members to deal only with qualified advisers actually encourage advisers to get trained or will it mean that those that only do a small amount of equity-release business drop out of the market because of cost?

Barrett: I think that inevitably if Ship ask that only qualified advisers are allowed to deal with equity release it will ensure some advisers drop out of the market and the ones left ensure they obtain the relevant qualification to remain in the market.

This is not necessarily a bad thing if it assists in improving the quality of advice available. Strangely enough, professional indemnity insurers have shown the greatest efficiency in helping to improve quality as they restrict advisers through onerous terms offered in renewing professional indemnity insurance. This has proved to be by far the best method of improving quality as the lack of it will cost in claims made against poor advisers and the poor advice they give. Hindsight is a lovely thing given the endowment fiasco.

Equity release can endanger clients if not advised upon with care so it is only right that Ship should show concerns in the regulation of this type of business.

Rothery:Speaking for our company, we have identified this as a possible issue, and already have one adviser who has passed the IFS test and I take the CII test in October.

Our approach will be to “refer to specialist” as the amount of business in this area we do anyway is not phenomenal, so we should cope easily and we will encourage others to consider it in our quest towards the CII diploma for all advisers. I think the Ship view is correct as the FSA view this as a high-risk area and the Which? report raised concerns, maybe groundless, but it is in the public domain so a responsible approach is needed.

O’Connell: I think that a number of advisers will drop out of the market but the people who do this will be missing out on a huge opportunity to grow and develop their client bank.

The market will continue to soar as more and more retired people with insufficient pension income will look to realise some of the capital tied up in their homes. Advisers who fail to train and grasp this oppor-tunity could be missing out on important source of busi-ness for many years to come.

Should the FSA get tougher on mortgage promotions after Woolwich and Alliance & Leicester both ran advertisements that made misleading claims about their tracker mortgages, stating a low rate for life, even though they are linked to a variable base rate?

Barrett: Of course, the FSA should get tough with any firm or individual it regulates if that business or individual transgresses from the rules under which we operate. That is, after all, what regulation is all about.

I continually argue that it is not the one-man band that is endangering the general public but the big players in the market who are becoming ever more hungry for sales and are targeting their staff accordingly. It is about time the FSA looked at this abuse and reacted to it if evidence exists of misleading practices.

Rothery: If the FSA is to regulate properly and be seen to, then it must treat mortgage lenders in exactly the same way as it does investment providers. As always, a major name needs to be caught early and provide the rest with a shot across their bows.

O’Connell: It is important that mortgage lenders get the context of their message right in ads so consumers are not misled. A rate for life below the base rate might always be relatively low compared with standard variable rates but in monetary terms it could hit customers hard in the future. I think it would be good if the FSA used its influence to encourage mortgage lenders to be more transparent and clear with their mortgage promotions.

Are the recent moves by the major lenders to strengthen their retention strategies likely to result in the new entrants struggling to win business?

Barrett: New entrants to the mortgage market will always struggle to market their products against the major established players. But it is for the new entrants to find niches in the marketplace and innovative products that can be marketed far more positively than those offered by the traditional major players.

However, from a business perspective, it makes sense to try to maintain existing business which it has cost a considerable sum to get onto its books in the first place. It is surely poor business practice to allow hard-won, business to pass to another lender every so many years. This makes for poor business management.

Rothery: Yes, this can only be good for the clients and I applaud Birmingham Midshires’ recent decision to pay advisers where a client stays with them as it is broadly the same advice process and same amount of time spent.

It has always struck me as odd that lenders encourage people in through the front door and let them slip out the back a few years later – what a strange way to run a commercial operation. Surely, repeat business is the most profitable business? The key issue to address is client inertia and the assumption that the retention product could not be improved upon. Surely then, it is up to the new entrants to get creative?

O’Connell: The retention strategies are very much welcomed and if the major lenders get it right, it will have an impact on the attempts by the new entrants to win business. In a rate-sensitive world, new entrants will always have the opportunity to steal a march if they can offer competitively priced products.

But if the major lenders follow Halifax’s plans and offer the same deals for new and existing customers, new entrants may well struggle to make an impact. Either way, it is good news for brokers.

The Panel
Kim Barrett, proprietor, KS Barrett & Associates
Colin Rothery, regional manager, Throgmorton Financial Services
Daniel O’Connell, practice principal, Ashley Shaw

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