The challenge of implementing mortgage regulation is upon us. With only six months until it kicks in, project teams up and down the country are busy putting in place the systems and processes that will allow their organisations to sell compliant mortgages.
We are no different at Britannia. The challenges are immense, as they are for all direct lenders in the mortgage sector. Several processes in our branches, contact centre and our website are being reworked to comply with regulation. The main challenge for lenders is the requirement for a customer to receive a Key Facts Illustration of the product in a durable medium before they can be committed to an application. This means a lender will not be able to process a customer's application until they have received the KFI by email, fax or post and had time to consider it. For telephone applications it means lenders will no longer be able to offer a one-stop telephone call – there will have to be a natural break in order to get the KFI to the customer. This requirement could result in an increase in processing times.
In an age where easy access and good service attracts high value mortgage consumers to the market the impact of regulation may be to turn people away from using the internet or phone to buy mortgages, perhaps returning to traditional modes of acquisition such as visiting the local branch.
What does this mean for lenders and IFAs who have spent millions putting in place state-of-the-art technologies to make life easier for the consumer? Has regulation put paid to that? Will the consumer no longer benefit from the instant mortgage revolution?
A recent report by management consultants Booz Allen Hamilton suggests people will return to traditional banking habits, using branches more to buy financial products. Consumers feel safer and more confident about the advice they get when dealing with someone face-to-face. But we all know there are flaws here too.
And therein lies the argument for mortgage regulation – the need to restore confidence to the consumer who wishes to buy a mortgage but isn't sure whether they are receiving the proper advice no matter which channel they use when contacting a lender.
Once the regulatory changes are in place there will no doubt be some antipathy among consumers to the extended processes they have to endure but in the long run the benefits of regulation will become apparent. Clearer illustrations of what mortgage products mean to the consumer will be compulsory. The ability to directly compare products from different lenders based on repayment costs and rates will be a great benefit. Highlighting early repayment charges, hidden fees and costs, inflexibility and not-so 'special' features will also help deliver a level playing field for selling mortgages, going a long way to repair the lack of confidence many consumers have in our industry.
The cost of regulation is a major concern for many and is making smaller lenders question the need for more red tape. But lack of consumer confidence in financial services companies is approaching danger levels. This has been fuelled by negative media comment on mortgage and endowment mis-selling as well as MPs investigating the exploitation of consumers by financial institutions. The costs associated with regulation shouldn't be seen as prohibitive to doing business but as necessary for survival.
Regulation will cause many headaches for lenders. Process changes, core systems and sales strategies will all have to be reviewed but surely that's not a bad thing if the consumer's interests are at heart. As a mutual organisation Britannia sees regulatory change as an opportunity to restore the confidence of the many consumers who have lost faith in our industry. It is also an opportunity for building societies to demonstrate the virtues of mutuality by showcasing our best value products and our membership rewards. It means levelling a playing field that until now has been biased in favour of fee-paying lenders.
And I doubt that consumers will flock back to branches and ignore technology. When the benefits and peace of mind that go with buying a compliant mortgage become apparent consumers will not be bothered about having to wait an extra day or two to complete a mortgage application form, whether it be over the phone or on the internet.
It's a difficult message to get across but sometimes regulation has benefits and maybe if we all tried to stop seeing it as a bitter pill we might find it turns out to be something far sweeter.