In the mortgage industry it seems that the only thing anyone talks about nowadays is regulation. The race is on for FSA authorisation, with networks circling to pick up the advisers who have in effect left it too late to apply for direct authorisation within the FSA's six-month guaranteed period for dealing with applications. Compliance is now the name of the game, with fully documented systems playing a vital role in providing evidence of compliance with the mortgage rules.
Now I acknowledge that proper paperwork is necessary to safeguard the borrower's best interests but are we not losing sight of the main objective – advising the individual client on the best mortgage option for their particular circumstances. The danger is that we could all start regarding the pile of correctly filled-in paperwork as an end in itself rather than as a safety net to ensure that borrowers have had a fair deal.
What can we do to make sure that we keep our focus on the client rather than on the paperwork? The answer lies in always remembering that the client sitting across the desk from you is not just another mortgage deal to be completed with a full audit trail – he or she is an individual with a complex web of financial needs all of which have to be taken into account when researching and advising on mortgage options. This means considering the mortgage in the context of the borrower's whole financial profile and outlook, not just as a one-off sales opportunity.
Many mortgage advisers are not IFAs and cannot advise on savings and investment products. However, this does not mean they can remain blinkered about the client's overall financial situation. For example under the FSA's mortgage rules, advisers must consider the affordability of suggested products. This must involve looking at the client's overall financial picture. It goes beyond the traditional affordability yardstick of income multiples and starts to refocus on the individual's financial lifestyle at present and in the future.
The mortgage is always the biggest piece in the financial planning jigsaw with investments, savings, life cover, ASU and pensions contributions being eked out from what is left in the pot after it has been paid. For this reason, many borrowers may need to be reminded about the safety net of fixed rates, should interest rates continue to rise regularly. In addition, the mortgage intermediary who is also selling general insurance products must satisfy the borrower's need for peace of mind over the mortgage payments being met if their source of regular income dries up. How can the mortgage product be made to work harder to help meet the borrower's financial needs? This is the question that can really add value to the mortgage selection process. Mortgage advisers should widen a client's horizons and help them to think laterally. After all, the adviser has the benefit of the day-to-day experience of a wide range of mortgage needs and solutions whereas the borrower only goes through the process every few years at most.
A couple of examples will show what I mean by lateral thinking. One of the Miles recommendations was more use of long-term fixed rates to promote greater overall financial stability. This is exactly the sort of holistic approach I am advocating. Although Miles' idea of long-term fixes may not catch on, there is a place for them. If a client is pushing themselves, living at the limit of income and looking for the highest multiples, perhaps a medium-term fix would give some stability and breathing space to become less financially stretched. In addition, stable outgoings for the client protect the adviser's add-on sales (ASU etc.) and help prevent clawback. Although the borrower might in the first instance be keen on the lowest entry rate, the lateral-thinking adviser can point out the benefits of a five-year period of payment stability within the overall picture of the borrower's financial profile.
Another example is the self-employed applicant where perhaps the first thought of the mortgage adviser is 'selfcertification'. But self-cert is not the whole story.
With a more far-sighted approach the adviser could explain to the client how they could use a flexible mortgage to best advantage by treating it as a savings bank for their Income Tax. A regular monthly sum to cover the expected tax bill can be overpaid into the flexible mortgage. Because the mortgage account has daily interest calculations, this can make a huge difference to the amount of mortgage interest paid over the long-term. Even though the total amount is drawn out again to pay the Income Tax bill, the mortgage account has had the benefit of the overpayment in the meantime. Of course, an added value of this regular overpayment/ savings habit is that the Income Tax bill can be paid painlessly when it falls due rather than causing the usual trauma which can be the case with less well-organised selfemployed clients. This is likely to result in a happy client who comes back to you for their next mortgage.
Sharing knowledge and experience can help to boost this sort of creativity and advisers who are looking for ideas could get inspiration from colleagues, lenders and packagers.
Many packager firms, including Knight Funding, have skilled staff who can draw on their experience and industry knowledge to come up with ideas that may help to provide the best solutions for clients.
Packagers handle large volumes of cases daily and have a wide overview not only of products but also of how particular applicants' circumstances can be best accommodated – always remembering that packagers only provide information and have no part in the advice process. In my position at the head of a growing packaging firm, I consider that sharing our experience and knowledge with brokers contributes the 'value added' element to the service that we give and has helped build the strong business partnerships we enjoy.
As we move into the era of FSA regulation, I'm all in favour of better controls supported by documentation. But let's remember that selling mortgages is not just about paperwork to be filled in correctly.
If we look at a client's financial position and then help them to choose the best mortgage solution we will be adding that vital consultancy element to basic compliance with the letter of the law as well as experiencing the satisfaction of having done a good job for the client.
A complex web of financial needs
Compliance paperwork cannot be regarded as an end in itself but should rather be a safety net for borrowers
Borrowers are people with a complex web of financial needs
The mortgage is the biggest financial jigsaw piece – lateral thinking will address the client's whole financial picture
Advisers have to make the mortgage product work harder for their client