Marketwatch columnist Andrew Montlake was right last week to name Michael Bolton as Villain Of The Week for his comments on interest-only and for suggesting brokers should be squeezed out of the market.
But Bolton brought attention to one of the most shameful outcomes of the banking crisis – brokers advising on many lenders’ products without receiving a fee for effectively a product sale on behalf of lenders such as HSBC, Yorkshire Building Society, Co-operative Bank and their ilk.
Conscientious brokers are torn between providing whole-of-market advice and whole-of-market advice. No, that is not a typo, just a sad commentary on the Financial Services Authority’s failure to define what constitutes representative whole of market and what is a fully independent offering.
Add the failure to impose Mortgage Conduct of Business rules for non-advised sales and to supervise lenders enough to control non-advised mortgage sales, and you effectively have an unregulated market.
No wonder lenders are kicking against near-compulsory advice. They have been left to their own devices for too long and get away with far too much in terms of seeing customers as sales targets.
Bolton highlighted the disdain with which lenders have treated the spirit and the letter of regulatory requirements.
The latest interest-only developments make me believe the mention of Treating Customers Fairly provokes merriment in lender circles. It is embarrassing to be promoting the organisations responsible for such acts and even more embarrassing to be regulated by the FSA which has failed to get even the basic things right.
Stuart Duncan, The Personal Mortgage Service
Arguments to keep non-advised sales do not make sense
It comes as no surprise that the Council of Mortgage Lenders and the Building Societies Association have voiced their opposition to the removal of non-advised sales, but what is surprising is their feeble arguments in support of its retention.
The BSA says there is a risk consumers become less engaged if they are provided with advice they don’t want or need. What are they talking about? Why is there a risk of being provided with advice?
If consumers don’t want advice they don’t have to see an adviser and can go via a non-interactive route instead.
For those people who just want information, there are plenty of channels available.
The CML says that the fully advised route will deter new product providers from entering into the market.
This does not make sense as new providers have historically used intermediaries to sell products and grow market share quite successfully.
The CML also estimates an advised sale can take up to 1.7 hours longer than a non-advised one.
Since the essential difference between the two types is whether a recommendation is made or not, this figure seems absurdly high. Indeed, I would suggest 1.7 hours is sufficient time to conduct an advised sale in its entirety.
I don’t think either the CML or BSA have taken on board what the FSA is saying – it’s virtually impossible to steer a sale down a non-advised route.
It’s likely advice has been given before the advised/non-advised sale paths diverge. Regardless of what they are told, consumers will invariably believe advice has been given.
Since these proposals are not being introduced in the short term, lenders should take the opportunity to retrain their staff and accept responsibilities that come with advised sales.
Roger Snodin, RS Mortgage Consultancy
The only people who think advice is vital are intermediaries
The comments left in response to the CML’s Mortgage Market Review feedback on Mortgage Strategy Online were laughable.
Most people are not interested in getting advice. Brokers are protesting simply to ensure the process is as complex as possible – that way they hope to ring-fence people and justify their existence.
The sooner brokers realise they only exist because there will always be a group of consumers who will use them because they can’t be bothered to do it themselves, the world will be a better place.
Also, when whining about direct deals, think about this. Brokers do not attract Mr and Mrs Squeaky Clean in the main.
Instead it’s those who either can’t be bothered to do it themselves or those who have an issue with their status.
When lenders have a great deal why wouldn’t they want to keep it for Mr and Mrs Squeaky Clean? You can’t blame them, can you?
Congratulations to Woolwich and RBS for sensible changes
I would like to offer my thanks to Woolwich for listening to broker feedback in relation to its funds booking system. Intermediaries can now secure funding from 10am rather than midnight.
The lender is also splitting its single tranche of funding into residential and buy-to-let cases and removing the funding limits for mortgage networks and clubs.
While not an advocate of it, the changes are sensible and will make brokers’ lives easier.
I would also like to congratulate the Royal Bank of Scotland for its recent interest-only changes.
There is a place for interest-only in the market and while some will disagree, the stance taken by RBS is positive compared with other lenders’. Interest-only is a niche product so a first-time buyer on an average income – £26,244 in 2011 – should be taking out a capital and interest mortgage.
With the odd exception this typical purchaser will not see a huge rise in income or necessarily be fortunate to have substantial bonus-earning potential, therefore they have no means to repay an interest-only mortgage.
The odd exception would be professionals who will see a significant increase in salary and lenders may wish to consider an interest-only policy for this bracket.
RBS’ criteria is sensible and logical, although I disagree with the policy that applicants must have their salary credited to an RBS bank account for the previous three months.
It is clearly happy to lend on an interest-only basis to those with an income of £50,000 and an appropriate investment vehicle. For those with earnings of more than £100,000 it will consider other repayment strategies, such as bonuses, stocks and shares.
RBS has given some thought to its criteria and not acted like another one of the flock. I hope other lenders reconsider or take this into account when reviewing their own criteria.
Finally, I would like to remind lenders that in the 1990s they generally threw their weight behind recommending endowment plans as being the most appropriate means of repaying a mortgage.
It cannot be right to advise this to borrowers at one point because it suited them and now to say that the method is unacceptable.
Borrowers who can provide evidence of their endowment should have the option of getting a mortgage regardless of LTV.
Colin Payne, Associate director Chapelgate Associates
Interest-only works for me even without a repayment vehicle
I was interested to read the research from Unbiased.co.uk on Mortgage Strategy Online recently that some 1.6 million home owners are simply paying off the interest each month and not repaying capital or saving anything towards paying off their mortgage debt in the future.
This was described by Unbiased as a ticking time bomb.
I have an interest-only mortgage without a repayment vehicle.
Alas, I had to stop my ISA in 2008 when my income dropped by 40%.
With things getting a little better financially, I am now focussing on repaying all my unsecured credit.
After this is complete, I intend to restart the ISA when the market picks up, whenever that might be.
But I am aware that at present I am not repaying what I owe.
While I am therefore effectively renting, the repayments equate to paying around 65% of market rent and allows my family to live in a great area with good schools.
In the worst case scenario, I will sell my property in a few years and take my couple of hundred thousand equity and buy somewhere cheaper, once the kids have moved on.
Can someone explain where this falls down?
Name and address supplied
NewBuy closed shop is nothing short of blackmailing clients
In response to Mortgage Strategy’s lead story last week about how lenders are only offering their 95% LTV NewBuy Guarantee products to a small number of brokers, there can’t be any broker who is surprised by this.
New home deals have always been a closed shop to small brokers, irrespective of whether a client would prefer to deal with them or not.
Just like most estate agency brokerages, it’s nothing short of blackmailing clients.
The obvious implication for customers in this type of scenario is that if they don’t deal with the estate agent’s broker they can’t buy the house.
It’s appalling but has always been there.
Bravo to Nationwide whose NewBuy scheme is at least open to all intermediaries – it’s an oasis in the desert at the moment.
It is OK to cut proc fees if savings are passed to customers
With regard to the decisions by Lloyds Banking Group and Nationwide last week to cut proc fees to directly authorised brokers, I have no problem with lenders cutting proc fees if the savings are going to be passed on to consumers.
Advisers already have great analytic scope and unless lenders offer each other’s products across a whole-of-market advice model they won’t be able to compete.
The proc fee always will be the last box ticked when I am researching the most suitable mortgages for my clients.