Will the National Association of Mortgage Brokers and Advisers' move to build a strategic alliance with Aifa to enable it to become the main trade body for the mortgage industry?
Saddleton: It is clearly a sensible idea to have a single trade body representing the views of the mortgage industry. A single body would reduce duplication, aid clarity and should provide a cost-effective solution to a long-standing issue. However, at this stage, we do not know the full extent of the “alliance” and, while it is suggested that both Imla and the CML are backing this move, it will still take a while to convince mortgage advisers of the practicality and benefits of this culmination of resources.
Smith: With 60 per cent of mortgage business coming from mortgage brokers/IFAs, it seems more than sensible for these organisations to consider a joint approach. The intermediary market has lacked a real voice of respect, authority and influence for years and the merger could provide the solution. Aifa can offer support and advice and can also bring their experience when lobbying the Government and other interested parties. Its current understanding of the FSA – what it does and how it ticks – will be extremely helpful to Namba.
I believe if it is viable – from an economic point of view – it makes sense to combine experiences and resources, get the FSA on board and move matters to the next stage. Representation is needed now in order to be part of the policy consultative process. Obviously, any new trade body has to speak for the industry on behalf of the members it represents. It is essential, therefore, that membership take-up is high in number to be a credible force.
Court: It has great potential to give the combined entity a stronger voice and is a real opportunity for advisers to have a clearer and more focused means of input into key industry issues, for example, in responding to CP146. It remains to be seen whether this opportunity is effectively capitalised on by all concerned.
Is the buy-to-let market in London saturated, making it advisable for investors to spread their portfolios to the North of England?
Saddleton: Our recent review of this market showed quite clearly that, while London led the way, other areas such as Huntingdon and Peterborough, Manchester and the surrounding suburbs, Lincoln, Leicester, Ipswich and Brigh-ton were all proving more popular with buy-to-let investors.
We always encourage asp-iring landlords to do their homework and take a medium to long-term view. Undoubtedly, at the present time, there are parts of London where rental yields have fallen due to the high numbers of rental property available. In other parts of the country, rental yields well above the average of 6-6.5 per cent are still being achieved.
Smith: All the statistical information seems to point to the fact that rental returns in London are lower. Arla states 5 per cent in London but rising to 7 per cent in other parts of the country. I think there is a definite slowdown and possible saturation of “high-rental” properties but we have definitely seen a move North, particularly with the waterway-style developments at Manchester, Liverpool and parts of the North-east.
Many speculative investors in these areas have made extensive profits simply buying off plan and making healthy paper gains in terms of their valuation on completion.
However, with a slowdown in property prices, this type of speculative profit is probably limited. I believe there are still hot spots – many in the North. As always, location and type of property (from the tenant's point of view and not the landlord's view) is still a critical part of the letting process,particularly in an overcrowded market.
Court: There would certainly seem to be more untapped opportunities in the buy-to-let market in regions outside London although investors used to the London market would need to research the areas they chose to invest in thoroughly.
Is it anti-competitive for Mortgage Brain's consortium of six lenders – HBoS, Alliance & Leicester, Northern Rock, Royal Bank of Scotland/NatWest, Woolwich/Barclays and Nationwide – to restrict online application facilities to that trading platform?
Saddleton: The members of this consortium represent a major part of the mortgage market, especially when you consider their subsidiary interests. We have collectively seized the opportunity to buy into and develop Mortgage Brain to provide a common mortgage trading platform, offering advantages to both lenders and intermediaries. The Nationwide Group's initial focus is on integrating our systems with Mortgage Brain's online platform, providing a preferred partner for the group. It is up to the other lenders to decide how they want to incorporate Mortgage Brain into their own distribution channels.
Smith: MBL is at an interesting stage of development. Lenders obviously bought shareholdings prior to the final outcome of the regulatory proposals. Nevertheless, the market is yet to see how natural choice – in terms of platforms/ sourcing systems – will work out. Brokers will vote with their feet (at the moment) so I do not feel it will have any impact in terms of anticompetitiveness.
Brokers will need transparency of products rather than a huge list of product offerings to choose from and these themes will develop accordingly. Lenders will continue to look to how they are going to maintain and improve distribution with intermediaries. This could be one such way.
Court: I would have thought that the consortium of lenders would want to maximise its ability to get applications electronically by having that option open to as much of the market as possible rather than limiting itself in this way.
Equally, I think it is healthier to have competition in this market to ensure costs remain competitive and it would be a concern if this action reduced choice for lenders and brokers.
Will Britannic Money's move to pay trail commission and launch joint ventures with intermediaries help it reduce churning and build loyalty with brokers and customers?
Saddleton: Given that customer loyalty is a hot topic in our marketplace, I would exp-ect to see several new initiatives introduced by lenders and brokers. Trail commission has not been widely adopted as yet but may have a part to play. From the intermediary perspective, however, the most important thing must be to promote the product that is right for the client.
Smith: To trail or not to trail? Many lenders would prefer a small up-front procuration fee and then a trail percentage fee paid over an agreed term of the mortgage. In the past, however, most brokers seem to prefer the immediate up-front fee and trail fees have not been generally accepted.
I would guess, if the annual trail fee was a healthy one, (subject to margin availability on today's competitive products) then maybe. But our feedback is that the majority of brokers are not lovers of trail fees. A joint-venture operation in its true sense could be of interest. Special products, special rates shared margin income, etc.
However, introducers will always want to look after their bread and butter customers and, in today's climate, people are aware of the remortgage possibilities.
A joint venture could well create lender/introducer relationships but it will not, as I see it, put an end to the ever-increasing remortgage activity. At the end of the day, unless mainstream lenders stop going for business at any price, remortgaging will continue.
Court: This approach will not fit with the business model for all intermediaries but the development of a closer partnership approach with certain key partners incorporating trail commission as one element may be a means of building longerterm relationships all round, providing this can be shown to benefit the customer as well as the lender and the intermediary.
Do you think there is a market for long-term fixed-rate mortgages (between 10 and 25 years) launched recently by the likes of Yorkshire, Leeds & Holbeck and Cheshire Building Societies?
Saddleton: I can understand the initial interest in such products as interest rates are currently at a 38-year low. But if you look at the rates offered, you could save a lot in the short term with a shorter-term fix. If rates remain fairly stable over the next decade, the savings could easily outstrip the benefits of a long-term fixed rate. Ten to 25 years is a very long time to commit to a fixed rate. Many of these products also have some very high early settlement charges, which can last well into the loan.
Smith: Historically, people have liked the security of longterm rates. Five years and 10 years have been regularly marketed and some of the new entrants have had tranches of 25-year deals which have been limited issues but well received. People who want to continue to get the best price will be keen to get no tie-in short term fixes/discount and rem-ortgage accordingly.
But you have to have the energy and time to take this route. That said, many do.On the other hand, there is a borrower who wants complete payment security year on year, knows what he can afford and will look at long 10-year-plus term fixes. But they are in the minority with general rates at a 40-year low and some five-year fixes available from 4.69 per cent. The question is at what rate do you fix at for 10-25 years. Answers on a postcard, please.
Court: There is certainly a market with a certain sector of the public for the security and lack of hassle associated with a very long-term fix and especially at a time when the rates available are so competitive. Obviously, these products do not fit too comfortably with advisers who like to move their clients every couple of years and generate repeat income as a result.
Do you agree with the FSA's proposal in CP146 to drop the full disclosure of fees currently required by the MCCB's code?
Saddleton: As per CP146, the FSA is still reviewing this area. They have raised questions about the suitability of disclosure and only comment that it “might not be appropriate” to unbundle the price of advice and distribution from mortgage products. The paper goes on to say that even if fees do not need to be unbundled, intermediaries may still need to “disclose the commission or remuneration they receive for selling mortgages”.
Smith: I must say I was surprised to see proposals to drop the full disclosure of fees. This would be a backward step, in my view, and seems to move away from all the previous emphasis for full transparency. The existing method of full disclosure does need review in order to simplify the process I but would not like to see full disclosure abandoned.
Court: This seems to be a retrograde step. Since this is one of the specific questions consulted on in CP146, I would hope that this requirement will ultimately be reinstated.