We’ve all read about the big lenders that have gone out of business in recent months, but we shouldn’t forget that the liquidity crisis is putting firms of all shapes and sizes under considerable stress.
I’ve heard from my broker a lot recently, partly because I find it useful to keep in touch and talk about industry developments but also because my two-year fixed rate mortgage expires in May.
From the volume of phone calls and emails I’ve received this year, it’s safe to assume my broker is not as busy as they’d like to be. This will be true of many brokers right now and I can’t blame them for working their client database harder. But could this be the tip of a worrying iceberg heading towards borrowers? Brokers and lenders are desperate to retain their clients and are contacting them months before their mortgage deals end to encourage them to think about new ones.
Fair enough, you might say, as they are simply trying to keep their customers before someone else grabs their attention. I agree. After all, it’s far more cost-effective to retain customers than it is to attract new ones.
But the trend that seems to be developing is that customers are being advised to apply for new mortgages far in advance of their current deals’ expiry dates, and I’m not talking a few weeks but a few months. It would appear the need for brokers to secure clients and their associated revenue streams could be taking precedence over the needs of customers themselves.
This worrying development could lead to problems as the time between mortgage application submissions and completions could become much longer due to borrowers targeting completion dates that are at the end of their fixed rate terms to avoid early repayment charges.
This is bad news for lenders as they will see application-to-completion timescales stretch. This is a key performance indicator of any lender’s underwriting and processing departments.
It’s bad news for borrowers too. With products and interest rates constantly changing, there’s a strong argument that by the time some of these deals are ready to complete, they may no longer be applying for the best or most appropriate products.
This is a serious issue and one that could end up on the the Financial Services Authority’s radar if we are not careful. There’s an argument that brokers are encouraging borrowers to snap up some of the last remaining decent fixed rate deals, but this can’t account for most of the deals on the market.
This is not just me speculating – I have evidence to prove it. I’m working with a solicitor firm that runs a bulk conveyancing business with some of the biggest brands in the mortgage market among its customers.
Efficiency is the name of the game in this line of work and firms such as this live and die by their performance against the targets set by the lenders they work for.
In recent weeks there has been a rising trend in the average length of time spent on the firm’s conveyancing cases, mainly because it’s receiving instructions earlier than usual.
Conveyancers cannot complete transactions without accurate redemption statements from lenders and they can’t get them until the end of fixed rate periods.
Although the firm I’m working with is still meeting and exceeding its targets, early instructions can cause more administration, which isn’t always conducive for the seamless transactions it prides itself on.
Who is responsible for this situation? It could be lenders or borrowers, but with most mortgages generated via brokers the finger is going to be pointed in their direction. So although it may be hard in the current environment, brokers must not forget to put their clients’ needs first when looking for new business.
I’m missing the good old days
I’m missing the booming sub-prime mortgage market and not just because it used to provide me with my income. A flick through the pages of the trade press these days just isn’t the same. Gone are the aggressive PR statements used to great effect by sub-prime lenders, and while lenders such as Mortgages plc and edeus are still running clever advertising campaigns, there’s a dearth of interesting promotional activity in the industry.
It’s inevitable in a quiet time when cost management and retrenchment is key that the marketing budget won’t appear high on the agenda. But marketing has a role to play at all times – good or bad.
I’m still looking for the company that has made the most of the downturn and pushed its brand forward. Easier said than done perhaps, but it is possible. The best marketing challenges don’t necessarily accompany the biggest budgets or the best of times.
Let’s hope there’s a boom in marketing creativity in the second half of 2008. I like to feel proud of the industry I work in and I get a kick out of seeing innovative marketing and clever PR. Maybe this year it won’t be lenders that take up the mantle but here’s hoping someone does.