Lehman Brothers has entered the retention policy debate by confirming this is something it is also looking at across its three brands.
Simon Hinshelwood, managing director and chief operating manager of the investment bank’s European Capital Mortgage division, says that all sub-prime lenders should be considering its approach towards retention and looking to structure both its products and its distribution relationships to focus more on this issue.
He says: “Acquisition costs are rising and so is customer churn. Indeed, it is to be expected that customers who go to a specialist lender due to a problem with their credit history are likely to seek a mortgage at a reduced rate once their credit history has been repaired.”
The retention debate has been raging in the industry after HBOS brands Halifax and BM Solutions launched policies that offered brokers retention proc fees.
This has sparked criticism from some quarters, who argue that rewarding the intermediary market for recommending clients to stay with the same lender is encouraging brokers to be lazy and is against the ethos of Treating Customers Fairly.
Alan Cleary, managing director of edeus, has slammed HBOS for attempting to halve the remortgage market and warns that this would kill off 25% of brokers.
Research from the Council of Mortgage Lenders recently revealed that remortgaging had reached its lowest level for five years, something Cleary attributes to retention policies.
However, a spokeswoman for BM Solutions says retention policies are too new to have had such an immediate impact.
Hinshelwood says that the question of TCF in these instances hinges on the advice given to customers by brokers.
He adds: “Provided an adviser takes proper account of the individual customer’s situation and recommends a product suitable to their needs it should make no difference to the compliant nature of that advice if the lender in question is an existing lender and a procuration fee is paid in the same way as it would be from a new lender.”
l See Cover Story, pages 52-55