What do you make of the introduction of Concordia to the mortgage market and will it prove to be a successful move for the five brokers concerned? Paterson:
Paterson:The introduction of Concordia should not have as huge an impact on the mortgage market as some analysts have predicted. I would imagine, given the combined buying power of the five companies, that their venture will be a huge success for them and would suggest that the benefit for all brokers is that the increased competition may bring about a rise in procuration fees, certainly for mainstream mortgage business.
The collaborators have been very wise here in setting up this venture as they are aware of the current costs to lenders of distribution and having product suites for each of the five companies. By rolling up into one entity, they have given themselves some leverage with the lenders on procuration fees and product design.
Clark: Five big mortgage groups negotiating as one will give the group power and will mean better terms on procuration fees. Make no mistake, Concordia is about commanding bigger remuneration. It will not improve the service offered to clients by lenders. It will not improve the service offered to intermediaries. Concordia can be a success only if the remit is clearly defined, with no anomalies and each member sticking to its agreed principles.
Big groups have bigger overheads, operating expenses and many more inefficient people. Concordia will be immensely successful if it brings to market common products, common online application systems and central administration teams. This will offer it huge economies of scale and cost savings, which it is probably desperate for, in addition to higher remuneration. It is a tall order, though.
Cracknell: As usual, only time will tell but there is bound to be some benefit in combining influences to exert more purchasing power. If Concordia’s operation is successful, there should be a benefit both to the firms and their clients. Brokers get increased market share and clients get better deals through some level of exclusivity.
Will there be any negative impact of Concordia on mortgage clubs and smaller lenders as some experts have suggested? Paterson:
Paterson:As regards the bigger mortgage clubs, I see very little impact on their membership levels. Concordia will just fit into the existing market and co-exist. There may be a few brokers who will seek to join Concordia, given the fact that they will have quite a say over the quality of distribution and, as such, it will be seen as a rather attractive proposition to brokers who are seeking something new.
Clark: Bigger IFA groups and networks which are able to command higher commission scales than smaller firms have been around for many years in the retail investment market. I have not noticed the small IFA going out of business or obtaining hugely different terms. In fact, I believe it was the bigger groups which forced better terms from providers which have then been passed on to the smaller IFA as the norm. I see some consolidation in the mortgage club market. However, the sheer market control and buying power collectively of thousands of smaller, individual mortgage brokers will continue. Mortgage clubs will stay and thrive.
Cracknell: The firms concerned are all very big players and that is bound to get the attention of the lenders. On the other hand, firms like Charcol seem happy not to join at this time. Whether others lose out will depend on the nature of the deals available to Concordia clients and how successful it is at marketing its services. How worried should the market be after the FSA revealed disappointing results from its quality of mortgage advice probe, particularly among smaller intermediaries?
Paterson: The FSA probe into the quality of mortgage advice was always likely to throw up some substantial compliance teething problems for members who are still trying to get their head round new procedures and paperwork. The benefit of the probe is that it will identify specific training needs and highlight all the specific requirements that the regulation changeover has brought. Most important, it is likely to draw advisers’ attention to the necessity of keeping quality records to fend off any potential claims.
Clark: I welcome the findings although disappointing. The FSA should get out on Arrow visits and either shut these people down or offer guidance on regulated activities. The market should not be worried. Those who conduct business properly have nothing to fear and those who are not sure should get compliance help.
Cracknell: This is clearly very worrying for the FSA and for consumers, who after the issues that have dogged the market in the past might expect to be better treated with regulation. We have seen the effect that advice issues have had on various sectors of the financial markets in recent years and unless the market gets its act together, there is bound to be an impact on consumer confidence and trust.
Do you see the market maintaining in 2007 the estimated gross lending of £345bn last year? Paterson:
Paterson:The likelihood is that the market will not maintain or increase the estimated gross lending of £345bn into 2007. We have already seen an unpredicted 0.25 per cent base rate rise in early January, with inflation hitting an 11-year high at 3 per cent. The rate rise was obviously designed to have maximum impact on spending and, coming as soon after Christmas as it did, it has certainly had plenty of media attention. I feel that all these factors will see a more conservative UK spend this year and perhaps a few early casualties of the rate rise will have the desired effect of quenching our thirst for additional borrowing and mortgage income stretches.
Clark: The Bank of England monetary policy committee does not want to put the property market into freefall. Its target is stability. We may see another interest rate rise before April but I then see rates coming back down towards the end of summer. I see a year of consolidation and some correction. Gross lending will fall but I am not pessimistic about the property market. Earnings are slowly catching up with the huge property rises of a couple of years ago and things will remain steady for the next two years.
Cracknell: That is hard to say, especially following the latest increase in interest rates. It may be that if there is a general slowing down of the economy over the next 12 months, lending may slow a little.
Do you think green mortgages will take off as a concept after recent Government rhetoric urging the industry to develop environmentally-friendly homeloans? Paterson:
Paterson:Green mortgages are likely to attract more customers this year as there has been a positive swing over the last 12 months towards all things green. However, these mortgages will still represent a minuscule amount of the market as very few people will either be aware of green mortgages or understand the concept. Given the clamour for all things green, their growth, albeit a steady one, is assured.
Clark: This is great spin with little substance. I suggest less than one in 20 have an ethical investment and certainly the whole of their portfolio is not green. I see the same and even less for mortgages. People are naturally greedy and will look for a good mortgage deal rather than whether the lender uses recycled paper or has a reforestation policy. If a lender can be green and offer a competitive product that is green, then it would be nice. If the Government starts to deploy carrots and sticks for being environmentally friendly, then this would have greater impact. The problem is that this Government makes more U-turns than a dodgem car. Take the recent pension term assurance debacle. How many trees did that waste?
Cracknell: Any measures that are introduced to help the environment are to be welcomed and I think that the building industry and mortgage lenders should be up for the challenge. Consumers are certainly more environmentally conscious and they may respond well to any positive steps taken by the industry. However, there have to be some real environmental wins, not just rhetoric.
What do you make of last month’s pre-Budget report, where the Chancellor pledged to exempt many new carbon-free homes from stamp duty? Will it make any difference to first-time buyers?
Paterson: In the short term, the Chancellor’s pledge to exempt many new, carbon-free homes from stamp duty will have very little effect, mainly given the lack of carbon-free homes in existence. However, should his pledge to make all new UK homes carbon-free in the next 10 years hold up, this exemption will come into play more. Sadly, for now, very few of us will see any benefit in this whatsoever.
Clark: This will make some difference but I suggest it will make a difference to bigger developments. Four per cent off the cost for a £1m property is £40,000 – a huge saving for a green home. First-time-buyers and those at the lower market end will pay no stamp duty or only 1 per cent anyway. I do not see any real impact for first-time buyers.
Cracknell: First-time buyers are bound to benefit from any cost savings that make it easier for them to get on the property ladder. Exemption from stamp duty is a massive plus point but the effect of supply and demand for such properties may impact on potential savings.