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Help networks to help smaller firms

Small firms aren’t ready for the Treating Customers Fairly initiative so the FSA must either give them a helping hand or support networks in doing so, says Justine Tomlinson

The FSA’s deadline for firms to comply with its Treating Customers Fairly initiative is looming.

By the end of March, brokers must at least have reached the implementation stage. According to the FSA’s definition, this means that firms must be developing TCF processes, allocating resources and responsibilities and creating capability among staff.

Are they? According to the Association of Mortgage Intermediaries, just 48% of its members are either at the implementation stage or are embedding TCF within their businesses. Of course, this means that more than half of all brokers could miss the deadline.

My firm also carried out a survey in early February. We decided to focus on small directly authorised brokers. Of a sample of 50 firms, only 6% of brokers were aware of the FSA’s TCF deadline. Most said they were happy to rely on their existing paperwork to prove they were properly implementing TCF.

Unfortunately, it is the small firms that are falling short of the desired standards. What’s more, this trend is not new.

When the FSA undertook a recent review of 252 mortgage firms it found that, among smaller firms, 75% did not have robust processes in place. This came only a few weeks after the FSA had to censure 200 brokers for using misleading advertisements. Yet again, small firms were the worst offenders.

Do these firms not give a damn or are there other factors conspiring against them?

Part of the answer may well be that the FSA has allowed a massive communications gap to open up. It has chosen to communicate key messages about the TCF regime to larger firms directly while expecting smaller firms with more limited resources to sort themselves out.

Sure, there is some helpful information on the internet about TCF but when you’re a small firm, a bit of hand-holding is welcome.

The results of both sets of research seem to confirm that small brokers need help and support but that the regulator is unwilling to provide it. If that is the case – presumably because its resources are limited – the FSA needs to support networks and service providers that are better placed to bridge the gap.

If the financial watchdog is to be effective in controlling brokers it needs to utilise all the resources at its disposal. Networks hold the key to controlling smaller firms and it’s about time the FSA realised that and acted accordingly.

Mixed signals about prospects for B2L

The latest Council of Mortgage Lenders statistics show that the buy-to-let market was in good health in 2006.

Some 330,000 new buy-to-let mortgages were taken out, worth £38.4bn – an increase of 48% by volume and 57% by value on 2005. Buy-to-let now accounts for over 11% of gross mortgage lending.

But the recent Royal Institution of Chartered Surveyors’ residential letting survey shows that although tenant demand remains high, residential yields fell again in Q1 2007. Capital Economics says that lower yields and rising interest rates may dampen demand for new buy-to-let mortgages in 2007.

But it also suggests that, with housing affordability still poor, tenant demand is likely to remain solid, so returns for existing landlords should be fine.

Capital Economics seems to suggest there won’t be a mass migration from buy-to-let but neither will we see new investors jumping into the market so keenly.

But before you become too despondent, bear in mind that Capital Economics forecast a 2% fall in house prices in 2006 – an embarrassing prediction given that they actually rose 10%.

Attacks on retention strategies are flawed

The debate about lender retention strategies rumbles on, with the edeus boys maintaining their reputation for controversy. This time they have waded in to give lender retention and retail strategies a good kicking.

Their argument is that lender retention schemes encourage lazy broking which will lead to some customers ending up with less than decent mortgage deals. They also claim that lenders with retail networks are not really committed to intermediaries.

I have to admit that, as much as I admire what edeus has achieved over the past year, I’m less than convinced by either argument. I don’t follow the logic that having branch networks means some lenders aren’t committed to the intermediary market. It simply means they have multiple distribution strategies.

Take the West Bromwich, for example. As a society it has a traditional branch network but it has publicly stated on a number of occasions that about 80% of its new mortgage business is generated via intermediaries so the latter camp is important to it. It is highly unlikely that brokers feel they are treated like second-class citizens because West Bromwich has a retail network.The society is on our panel and I can confirm that it has some excellent buy-to-let deals and gives brokers good service.

I believe that, in this day and age, brokers understand that lenders will pursue business from wherever they can get it. But it is flawed logic to assume that having more than one distribution channel means that one will end up being treated badly.

I’m also not totally convinced by edeus’ retention argument. In my opinion, there’s nothing wrong with lenders offering customers attractive deals and brokers attractive proc fees as an incentive for the former to leave their mortgages where they are. It’s brokers’ responsibility to check the retention deals on offer against other deals available in the market. If one is competitive, fine. If not, go elsewhere.

To suggest that brokers are simply going to cave in and recommend retention deals whenever they are available is highly unlikely. Brokers know that they have to be able to stand by their recommendations and show why they took a certain course of action if necessary.

Will retention deals kill the remortgage market? I doubt it. They may slow down the churn rate but there will always be borrowers who value independent advice and the professional support available from brokers. The remortgage market will be around for some time to come.


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