It’s been a busy month in the mortgage industry and there might be a little justification for everyone involved in mortgages to feel somewhat under siege at the moment.
Not only have we seen a further rate rise from 5.5% to 5.75% by the Bank of England, squeezing margins still further, but the Financial Services Authority is on the attack, starting enforcement action against five sub-prime firms for weaknesses in their selling practises and assessments of their clients’ ability to afford a mortgage in the first place. The regulator wasn’t finished there either, with its Retail Distribution Review suggesting the ability to call yourself an independent financial adviser be based on whether the adviser takes a fee from the client or commission from the provider. For those who still believe this won’t affect mortgage advice don’t kid yourself – what happens to the IFA community eventually happens to the mortgage community – so mortgage advisers and distributors should be making representations of their own now, in support of the IFAs.
Then the new chancellor, Alistair Darling, decided to weigh into the fight. In an interview with the Guardian newspaper he blamed mortgage brokers and lenders for offering fixed-rate deals on a short-term basis to maximise profits rather than selling longer-term mortgages.
Darling has said Labour will issue proposals shortly to increase the supply of long-term fixed-rate home loans for periods of up to 25 years, amid concerns lenders are only offering short-term products so they can charge high arrangement fees.
The chancellor said: “In terms of mortgages, there has been a big expansion in fixed-rate mortgages over the last two or three years, but they have all been short term, for a period of two or three years.
“When you look around the rest of Europe, it is more common to have longer-term fixed rates. We need to look at that. We need to reduce volatility.”
From an editorial point of view it is easy to target the government and the FSA, as a colleague recently observed. But then look at the ammunition that has been provided for such sharpshooting.
Let’s start with the RDR. Anyone that thinks this won’t effect the mortgage market really ought to get their head out of the sand, and do it soon. This might sound odd given that the whole debate around the RDR is somewhat pointless. It is fairly obvious the outgoing chief executive of the FSA, John Tiner, is somewhat cheesed off that the Association of Independent Financial Advisers and others thwarted his depolarisation plans, and that the RDR is his revenge. But even this is missing the point, which is that most IFAs don’t get out of bed for a client earning less than 30,000 a year, so whether that client pays by commission or pays a fee is irrelevant, because either way they can probably afford it. Of more concern should be when the FSA tries to apply the same system of fees or commission to the mortgage market.
All that is really likely to happen is that most mortgage brokers will carry on as before, and it will simply be the high net worth mortgage brokers that charge a fee. But there is a danger here that the regulator creates a two-tier system between those that can afford to pay for advice and those that really can’t – what was that line about treating customers fairly again?
Moving onto dear old Alistair, who admittedly looks like an old economics professor, but obviously hasn’t got a clue. No government proposals to get consumers onto 25-year fixed rate mortgages are ever going to work, because no lender would ever support such an idea in the current climate, covered bonds or not.
Obviously some lenders will offer them within their range, and some already do, but anything on a mass scale would kill the remortgage market and put brokers, lenders and distributors out of business. So there’s no chance of it ever getting off the ground.