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Will clicks buy the bricks?

Should the Bank of England raise interest rates?

PH: Inflation is very low at present – less than 2 per cent when you strip away the effect of mortgage repayments.

The aim of the Government has been to keep inflation under control and they have managed to achieve this by manipulating the base rate.

A further interest rate rise would be bad for borrowers and the mortgage industry as a whole. But unfortunately, I believe it is inevitable and another 0.25 per cent hike will happen sooner rather than later.

RV: Recent changes to interest rates have been in the order of 0.25 per cent and have not had a noticeable effect so far on transaction levels or prices.

For existing mortgage holders, given the high proportion of fixed-rate mortgages written in recent years and the annual budgeting systems operated by a number of lenders, it is unlikely the majority of homeowners are immediately affected by changes in interest rates.

AB: The Bank of England has a clear objective for interest rate policy – to keep inflation under control and to deliver a stable macro-economic climate rather than to deliver politically driven rate changes. We will support the Bank of England in any measure it takes to achieve this macro-economic stability.

For Abbey National customers, borrowers face increased payments when rates rise, but savers face increa-sed returns – and savers outnumber borrowers by seven to one. We have to balance our rate response carefully to take our customer base into account.

Should the FSA fine IFAs for endowment admin blunders?

PH: The key difference here is between what is an admin blunder and what is misselling. If a broker has missold an endowment by advi- sing a customer incorrectly due to poor record-keeping or any other reason, then yes, there should be some form of disciplinary action.

We must not forget, however, that most allegations of misselling relate back to a time when interest rates, and therefore projected returns, were much higher and no one could have predicted that we would find ourselves in such a completely different interest rate environment a few short years later. Advisers cannot be held accountable for this change of circumstances and nor should they.

RV did not deem it appropriate to answer this question.

AB said he was unable to answer this question.

Would you like the Finan-cial Ombudsman to regulate mortgage advice?

PH: No. The FSA already regulates mortgages and the offer by the Financial Ombudsman to regulate mortgage advisers, although welcome, would obviously create a two-tier system of regulation. The omission of mortgage advice in regulation left a gaping hole but I feel it is important that we do not make the regulation process more confusing by making more than one body responsible for mortgage regulation. After all, it has essentially been put into place to make the mortgage industry more transparent and understandable. If any one should regulate advice it should be the FSA. Let&#39s do it properly.

RV: The framework established under the MCCB and its future plans probably represents the best way forward for improving and maintaining the quality of mortgage advice in the UK.

Detailed audit plans have now been set out for MCCB members and proposals are being made to implement fit and proper and competency requirements. This should mean that the quality of advice received by customers about mortgages will be no less than that on any other major financial services transaction.

AB: Abbey National has always been in favour of effective regulation of the mortgage industry, and we are on the record as saying that regulation should fall within the remit of the FSA.

We always have, and continue to support the CML&#39s code of practice, and are a full member of the ombudsman scheme. We also believe that moving regulation into the remit of the FSA&#39s Financial Ombudsman will make regulation more transparent, easy for customers to understand, and can only increase confidence in the market.

Are Catmarked mortgagesselling?

PH: I don&#39t believe so. There has been no indication that Cat mortgages are making significant inroads into the mortgage market. The problem is that the most competitive mortgage schemes are not currently applicable for Catmarking. The Catmark as a concept is fine but borrowers are under the incorrect assumption that Catmarks mean the mortgage is the best product available, which is clearly not the case.

Under the principles of best advice, I even question whether an adviser can justify recommending a Cat mortgage to a borrower.

RV: I think we will have to give Catmarked mortgages a little more time to work their way through into the statistics. There are many excellent deals available in the market that, for one reason or another, do not qualify for a Cat standard, so Cat mortgages may take a while to have an impact on this very competitive market.

AB: Catmarked mortgages, as outlined by the Government, are offered by very few lenders. To that extent, they are not selling well. Abbey National plans to launch a fully Cat-compliant product in July this year. However, our current flexible mortgage product is very close to full Cat compliance and these are selling extremely well. There is a great appetite for a straightforward product that customers can understand and feel in control of.

Do you think online mortgages will make a significant dent in the market?

PH: No I don&#39t think they will. There are a number of financial products that are ideally suited to the internet such as car insurance, current accounts and credit cards. They involve relatively simple transactions and consumers can easily compare the best deals.

However, mortgages are very different. They are a complex, low-frequency purchase, perhaps once every seven years, and people want the comfort of face-to-face advice when choosing one.

People will definitely start to use the internet more as a starting point for identifying the type of mortgage they want but they will still ultimately want the face-to-face advice and comfort that an adviser can offer.

I do, however, believe the internet will become a powerful tool for generating new mortgage prospects.

RV: For online mortgage propositions to be successful, you have to offer good deals that can be sourced and compared easily. It is also important the loans are available from a trusted source with a consumer brand and that there are sufficient savings in time or money to justify customers serving themselves.

AB: Not in the short termbut within a few years online mortgages will undoubtedly have a significant share of the market. However, we firmly believe that customers will always value face-to-face advice and this is the thinking behind our own clicks and bricks strategy.

We want to maintain a strong branch presence but also aggressively enter the online world of e-banking to provide customers with the widest choice of business tools.

This lies behind the launch of on the internet and the launch of digital TV banking in summer 2000. In addition, our introducer internet service has already achieved pledges of 3bn of business – a clear sign that the industry is ready to move to this platform.

Given the recent revelations on Standard Life Bank&#39s lending practices, are banks ever justified in lending times five income?

PH: Lending criteria are a set of simple rules that lenders follow. However, underwriting is increasingly becoming more flexible and loans are now often granted based entirely on personal circumstances and assessed individually on an applicant&#39s indi- vidual merits.

I think this is good. The accepted industry standard of three times income was established years ago when interest rates were upwards of 10 per cent. With rates today historically low and with a continuing expectation of this situ- ation by virtue of the Europe factor, it is a fact that mortgages are more affordable. This illustrates there could be a definite case, in certain circumstances, for enhanced income multiples.

RV: Income multiples are nothing more than a rough and ready guide. The true measure of prudent lending policy and underwriting is affordability and this will change with interest rates, income levels and other personal circumstances.

AB: Without wishing to comment on Standard Life or any other competitor, Abbey&#39s lending policy is as flexible as possible within a framework of prudence. For this reason, we will take every case individually. However, we would not lend five times income.

Paul HowardSales and marketing director,Mortgages plc

Richard VerdinHead of business development (housing & protection),Legal & General

The third member ofthe panel was:Andrew BartonHead of mortgage marketing,Abbey National


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