A year of revolution

Looking back at the past 12 months in the life of Mortgage Strategy, the most important development by far was the introduction of statutory regulation which has transformed the industry, says Mira Butterworth

It is well known that the Mortgage Strategy team enjoys a celebration but the magazine has an extra spring in its step this week as it marks its fourth anniversary and reflects on the success of the past 12 months.

During this period, the title reinforced its position at the top as the leading magazine for mortgage inter- mediaries after winning the award for personal finance trade publication of the year. The accolade was in recognition of all our hard work in breaking the hottest news stories, producing the most in-depth features and sparking the fiercest debates in the mortgage marketplace.

A magical mix of topics has been covered by the magazine this year, including the plight of first-time buyers and Stamp Duty thresholds. But the issue that has dominated the past 12 months has been mortgage regulation.

Back in September 2004, Mortgage Strategy announced that the industry was about to experience its own millennium – the mortgage millennium. The term was used to mark the imminent arrival of statutory regulation and the influence it was poised to have on the mortgage industry.

At that time, every word passing the lips of an adviser or lender seemed to include some reference to Financial Services Authority regulation and its potential impact on their businesses. Our news pages were packed with concerns about the FSA regime – from whether pure packagers should be regulated to the definition of an inducement and whether this would put a stop to cash bonuses.

Regulation has continued to feature strongly in the magazine ever Isince. In September, lenders battled it out to be the first to launch a complaint Key Facts Illustration, with Infinity Mortgages claiming the crown. The group said its less extensive product range meant its KFIs could be kept to four pages but warned that some lenders might have to slim down their product ranges to avoid overcomplicating KFIs.

As the debate about the length of KFIs unfolded, it gathered momentum and the FSA stepped in, stating that KFIs should be a maximum of five pages. But today, many lenders are still failing to abide by these guidelines, with some KFIs as long as 11 pages.

In October 2004, less than a month before statutory regulation kicked in, Mortgage Strategy reported on figures from Next Generation Mortgages revealing that a third of mortgage advisers had yet to make a decision about whether to become an appointed representative, to go directly authorised or become an introducer. The findings confirmed industry concerns that significant numbers of advisers faced the prospect of being unable to trade after Mortgage Day.

But by that time, one company had already closed its doors to business. The Mortgage Business stepped out of the market for two months in the summer after facing severe backlogs. However, in October it confirmed in Mortgage Strategy that it was back in business, returning with a range of remortgage deals.

Just a few weeks on and you could almost hear the sigh of relief from the industry on reading our November 1 edition, which declared: “Regulation is here at last.”

Indeed, it had been nearly five years after the government first announced detailed plans to replace the voluntary Mortgage Code with a statutory regime. In the same edition, we highlighted concerns about training costs and processing delays, with lenders saying a slowdown in business was anticipated for the first few weeks of the FSA regime as brokers gained confidence in the systems.

The following issue, we continued the regulation theme, asking: “How was it for you?” In that edition, we exclusively revealed that at precisely 44 minutes and 29 seconds past midnight on Sunday October 31, John and Linda Philpin became the first customers in the country to receive a regulated mortgage offer. It was a double whammy for the Philpins that night as 25 minutes earlier they had received the first regulated Key Facts Illustration that would lead to the offer. The deal was brokered by London-based Charcol and was made possible by BM Solutions’ 24/7 online service.

Charcol’s senior technical manager Ray Boulger pointed out that statutory mortgage regulation had caused the industry a lot of angst and many lenders were burning the midnight oil to make sure they were ready for the big day. But he says the first ever regulated mortgage offer demonstrated that with the right approach and planning, it was business as usual with the right broker and the right lender.

The consensus opinion among brokers was that lenders had let them down in not being ready for Mortgage Day. In particular, lenders had come under fire for failing to produce compliant KFIs.

Then there was Legal & General, which saw nearly half of its appointed representatives left high and dry on Mortgage Day after the FSA failed to put their authorisation numbers online.

Further concerns about the impact of regulation were raised that month by the chairman of the Building Societies Association and chief executive of Stroud & Swindon John Parker, who warned the cost of regulation for lenders would hit the 500m mark in the first year.

Given the vast amount of change occurring within the industry at the end of last year, it seemed strange to hear that savings bank ING Direct was looking to join the mortgage market. But a source told Mortgage Strategy that the company was definitely going to start doing mortgages and was already tendering valuations.

Also on the agenda that month was the launch of Mortgage Strategy’s campaign to Step Up Stamp Duty. The aim was to get the Stamp Duty lower threshold raised from 60,000 to 150,000. The 60,000 level had been set back in 1993 and yet property prices had risen dramatically meaning that the tax was hitting first-time buyers hard.

In the run-up to Christmas, Mortgage Strategy secured an exclusive interview with John Garfield following Charcol’s sale by Bradford & Bingley to a team backed by Advantage Capital, including entrepreneur Jon Moulton and Charcol founder Garfield. It was reported that Charcol – now John Charcol – would remain a specialist broker rather than expand into other areas of financial advice.

In the last edition of 2004, Mortgage Strategy reported on how intermediaries at the Council of Mortgage Lenders annual conference were predicting a soft landing for the housing market.

Fears about the cost of Home Information Packs were also expressed in that issue, with experts warning that HIPs could hit consumers hard and deter sellers from putting their homes on the market. Simon White, director at Ashdown Lyons, said the profession was a little wary of HIPS. For surveyors it will mean more work while for consumers it would mean spending more to put a property on the market, he said. HIPS are due to be introduced by the government in two stages – a voluntary trial starting from July next year, followed by mandatory introduction six months later, from January 2 2007.

Many consumers didn’t just wake up with an urge to reach for some hangover cures on New Year’s Day – they also wanted to reach for the phone and call their mortgage broker, according to Mortgage Strategy’s first edition of 2005.

We reported how overspending at Christmas had pushed even more people into paying off credit card debts by remortgaging – a policy that could be risky, say experts.

And while borrowers nursed their hangovers, brokers paused for breath as the dust settled on mortgage regulation. But not for long. The New Year saw even more regulation, with the general insurance market being the latest sector to get the FSA treatment. It was believed that thousands of mortgage brokers could be temporarily unable to conduct general insurance business because they had failed to register in time with the FSA.

In January, we also covered how the Office of Fair Trading was attempting to close down three companies controlled by David Steene, founder of the notorious City Mortgage Corporation. We reported that OFT officials had issued minded to revoke notices against the Oxford Contact Group Ltd, Oxford (Portfolio) Ltd, and Oxford (Servicing) Ltd. Steene was unavailable for comment when MS attempted to contact him at his Borehamwood home at that time.

In the same month, auction website eBay told a company inviting bids for a mortgage to withdraw its advert from the site as it offered nothing for users to bid for. Fitzwilliam Finance had placed an item on the site under the category of mortgages that gave people with County Court judgements, arrears, poor credit or who were self-employed the chance to bid for a mortgage from 0.99 upwards. But anyone who placed a bid would simply be contacted by Fitzwilliam Finance, a company specialising in selling cars, which then intended to refer enquiries on to authorised mortgage advisers. The plight of first-time buyers also hit the headlines in January after the news that Mortgage Express was facing an inquiry by the Treasury Select Committee into its Max 130 mortgage. The product allows home buyers to borrow a maximum of 130% of the value of their home. Industry experts and MPs criticised the Bradford & Bingley-owned company in the national press for leaving borrowers open to negative equity, driving them into further debt and possible repossession.

At the beginning of February, it was down to Rachel Bancroft, managing director of KGB Packaging, to sort out the week’s top news stories after stepping into the MS editor’s shoes for a week. Bancroft scooped the chance to run the industry’s top magazine after bidding 10,000 in a charity auction.

The death knell for packagers was sounded in our March 7 issue when it was suggested that more than 75% if the packager market could be wiped out within the next 12 to 18 months as sub-prime lenders said they would only deal with 50 big packagers. Jon O’Brien, operations director at the Professional Mortgage Packagers Associates, believed packagers could either get swallowed up by another packager, go down the lender route or consider satellite packaging.

Claims that the property market was struggling and heading for a downturn were rocked after the news in March that the most expensive country property ever to go on sale in the UK had hit the market. Priced at more than 70m, Updown Court, based in Surrey, is said to be the first 21st century stately home in Britain with grounds larger in area than either of the royal residences, Buckingham Palace and Hampton Court.

Later in March, Rosemary Gallagher, former deputy editor of Mortgage Strategy, was pictured on the front of the magazine at 11 Downing Street, delivering our Step Up Stamp Duty message to the chancellor of the Exchequer Gordon Brown. The campaign proved a success, with the chancellor doubling the Stamp Duty threshold to 120,000 in the Budget. Gallagher is due to begin her new column in the magazine next month.

In April, higher lending charges came under the spotlight with The Woolwich scrapping its charges and calling on lenders to following suit to help young people who need support to get into the housing ladder.

In May, the General Election was called and Mortgage Strategy had a candidate from each of the three main political parties providing their views on the housing market. One of the biggest issues for them was the decline of first-time buyers, which was covered in our following issue. Some of the leading figures in the mortgage market joined Mortgage Strategy at its London offices to discuss the future of this sector. The theme was continued at the end of the month with an in-depth analysis of Open Market Homebuy – the government initiative to get first-time buyers into the market.

In June, everyone in the industry was talking about Mortgage Strategy’s “Friends Reunited” cover feature, which examined connections in the industry. The careers of successful industry figures revealed a network of cross-connections that often dated back decades.

At the same time, Chris Cummings was appointed director-general of the Association of Independent Financial Advisers. Cummings insisted that despite his promotion – he was formerly director of the Association of Mortgage Intermediaries – his focus would continue to be on the mortgage industry and AMI.

June also saw the FSA putting three higher risk companies into enforcement for breaking its rules – the first time it had exercised this power in the mortgage market. The news was followed up with Andy Watson, head of mortgages at the FSA, giving an exclusive interview to Mortgage Strategy about the decision.

It was a month of mixed emotions in July as brokers first welcomed the success of London’s Olympic bid saying it could boost house prices in the capital by up to 66%, then shifting into defiant mode, saying it was business as usual after the London bombings.

The growth of the sub-prime and buy-to-let markets was reflected upon in August as Abbey announced its move into these sectors. At the same time, Bristol & West said its niche offering in the buy-to-let sector had led to a substantial increase in its market share during the past nine months.

But concerns about the strength of the market were still being voiced. Solicitor Salans warned that unless the autumn months are buoyant in mortgage business, lenders would fall short of their business targets. Caroline Havers, partner at Salans, says lenders are looking forward to a booming autumn to compensate for losses so far this year.

And with the recent interest rate cut and new products being launched to attract borrowers, the scene is set for a more attractive environment for the mortgage industry.

Mortgage Strategy has enjoyed yet another successful year and would like to take this opportunity to thank you, our readers, for your support. We plan to continue to provide you with the best mortgage read.

Organisations are adapting to regulation
Alan Cleary is director of Halifax Intermediaries

Time passes so quickly in the mortgage world that it always amazes me when I look back at what has occurred in the period of just a year. Reviewing the 12 months up to this September, there are a number of highlights that spring to mind.

I can’t, of course, fail to mention regulation. The run up to and implementation of statutory regulation proved a testing time across the industry with some businesses taking the changes in their stride while others struggled. At BM Solutions we were able to make the most of the transitional time, completing the first regulated mortgage and providing continuity of service levels. Organisations are now starting to reach comparable levels of development and the benefits for lenders, brokers and consumers are starting to become clear.

But there are some other real highlights for us when looking back. Late in 2004, BM Solutions was awarded best sales force by a well-known trade publication. This was a great achievement for the team and myself, as it is extremely gratifying when people recognise the effort and commitment put in by our sales force to offer brokers the best support available.

Another milestone was the launch of BM World in March 2005. As a business BM had already demonstrated the competitive advantage that using best technology can bring. So a natural progression for the business was to augment the One Minute Mortgage, providing new features and tools such as industry news, product pages and desktop messengers. The feedback received on these additional features has been fantastic.

In recent months BM Solutions has also received encouraging feedback in an independently commissioned survey of brokers, examining a range of areas including reliability, processing, electronic business and web features. The results showed improvement from 2004 across all areas, showing that our continued commitment and investment is being successful in offering better services to brokers.

And this August also ended on a high for me personally with a promotion to director of Halifax Intermediaries.

These subjects, of course, cover only a few of the highlights from the past 12 months for us and the pace of the industry means there have been many more that there is simply not space to mention.

Insurance regulation went fairly smoothly
Christopher May is director of The Mortgage Times Group

The past year has been an eventful one in the mortgage industry. I don’t think anyone would deny that the biggest event in the past 12 months was the introduction of regulation by the FSA but whether that should be seen as a highlight or a disaster will depend on the company you are in.

The Mortgage Times Group definitely sees it as the highlight of the year as we successfully navigated our way through regulation and have grown into one of the largest networks in the country. Part of this success has been in building a competent compliance department to support the group’s business model in the regulated environment. We have also seen one of the largest growth rates in the number of appointed representatives.

This leads me on to another notable feature of the past year – the speculation with regard to appointed representatives after regulation.

In the lead up to regulation there was speculation that there would be a rush of brokers joining firms as appointed representatives but as we passed Mortgage Day this did not occur and the industry was left thinking – where are all the ARs? In more recent months we have begun to see a steady increase in the number of appointed representative applications to networks, suggesting that brokers were adopting a wait and see attitude to the regulated environment.

Other industry highlights include the successful implementation of non-investment insurance regulation, which went through fairly smoothly.

Looking forward to the next 12 months, the highlights are likely to be the introduction of Home Information Packs and self invested personal pensions regulation, and the effects these developments will have on the market, unless something completely unexpected suddenly shoots to the foreground.

Consumer confidence is down but not outSimon Jones is director at Savills Private Finance

Regulation has been the biggest challenge of the past 12 months but also goes down as one of the best things that happened. It forced lenders to spend more money on their systems, which in most cases has meant enhanced service. Regulation has also been beneficial to the public’s perception of the mortgage industry, which is a bonus.

The housing market has also experienced a soft landing, despite fears in some quarters that there would be a crash. While consumer confidence may have been dampened, it hasn’t been totally flattened.

With a 0.25% reduction in the base rate, the pressure is also off borrowers to a certain extent. This has further boosted confidence in the housing market. First-time buyers in particular are more likely to think about taking the plunge if they think rates are going to move downward rather than upward, and if they believe that house prices have gone as low as they are likely to go.

Lenders have also launched plenty of excellent products in the past 12 months, with more innovation and better rates. In the buy-to-let market in particular there has been good progress with more lenders coming into the market. As a result, rates have become more competitive, rental cover demands from lenders have eased and higher LTV are now achievable.

Another positive development is the number of brokers who have gone down the directly authorised route, having realised it is less onerous than they had previously feared. This means networks have to try harder and have to add real value rather than simply aggregate.

Plans for a Key Facts Illustration review are also welcome, as the document urgently needs to be made more user-friendly and less onerous.

Proposed changes to the pension rules, allowing clients to invest residential property in a self-invested personal pension from next year, are also welcome. There is much anticipation about this development and the legislation can’t come soon enough for us as we are looking forward to exploring the opportunities the SIPPs changes will present.