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Government says dual pricing is a commercial decision

The government has rejected a broker petition calling for a ban on dual pricing.

The petition, signed by 2,046 people, was submitted two months ago by Ronnie B Financial.

But the government says pricing, terms and conditions of loans and mortgages are commercial decisions for banks and building societies.

It adds that UK Financial Investments Limited manages the public’s stakes in banks on a commercial basis.

It has the objective of protecting and creating value for the taxpayer as shareholder but does not seek to intervene in commercial matters such as pricing or product design.

It says: “Regarding independent advice in the market, the government is committed to promoting understanding of the financial system and raising levels of financial capability across the UK.

“We are committed to improving the advice available to families on how to manage and plan their finances. Once families know how to make sense of what’s on offer, we will make sure that better information is out there on which to base financial choices.

It adds: “We believe that private intermediaries also have an important role to play and that a free national financial advice service will be beneficial to both consumers and the financial services industry as a whole.

“Better informed and more financially capable consumers are better able to engage with the industry and are motivated to take greater responsibility for their financial affairs. In addition, the national financial advice service will be to help individuals to identify when they need regulated advice.”

The petition claimed mortgage lenders are creating unfair price discrimination which limits independent advice and will affect employment and small businesses.

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  • jakejaden111 29th November 2010 at 8:58 pm

    • This is a wonderful opinion. The things mentioned are unanimous and needs to be appreciated by everyone

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  • kyle richard 24th November 2010 at 3:12 pm

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  • craig 25th August 2010 at 1:59 pm

    i always here about brokers charging a fee for advising on direct deals. How does this work in reality? Are clients coming to meetings with wads of cash and paying you just because you tell them HSBC have the best option. What if HSBC turn them down? Are you refunding the fee? Are you paid on completion? What about non face to face,what obligation does the client have to pay you. This all sounds good but come on, surely you cant make a decent living by doing this.

  • Anthony Clegg 25th August 2010 at 1:54 pm

    Sarah, The differecne is that brokers are providing independent advice and offering an advised sale. One of the points the Government makes is educating consumers on financial matters and having financial advice widely available. This I am sure you agree is best done via broker. If not you are saying that client can do your job sitting in front of the internet for 20 minutes. I dont think most brokers would complain if they had no exclusives if they also had the assurance that there was no dual pricing.

  • Jon 25th August 2010 at 1:38 pm

    Most brokers would still like an exclusive product which tends to make it difficult to complain when lenders have cheaper products via their branches.

    If the amount of business written via a branch halves, then as a rough guide the cost of writing a mortgage in the branch will double because of fixed overheads, so it is understandable that lenders will want to keep their branches busy when there is less business about.

    As to sub prime – the reason it isn’t available is that lenders cannot raise the funds to lend – that is, people do not want to take the risk, and if funds were available and it was priced correctly you would probably find that it was too expensive.

  • Sarah Smith 25th August 2010 at 11:50 am

    I’m sorry but none of you complain when you get broker exclusives from lenders, especially when these are priced less than direct products. Yeah its annoying, but that’s how it is just now. I charge a small fee for advice on direct products, that way I don’t lose out. My customers don’t mind as they know they are paying for a good service and the right product recommendation. I really don’t se the problem here.

  • GMS 24th August 2010 at 5:22 pm

    1991 was my final year of secondary school so the recesion kind of passed me by!
    Sub prime lending was reckless, that point very few would argue. However when it was allowed to become such a big part of the market, taking it away at a stroke is not going to help.

    If a lender is willing to take a risk, and a borrower is willing to engage into it then they should be allowed to do so. If sub prime lending were priced for risk, rather than for market share previously then who knows where we would have been today. Lets not forget that the mortgage market here was not the major factor, but the market in the US. Largely unregulated it caused massive problems.

    If a lender were to venture back in to sub prime the rewards would be huge, as would the risks and if the FSA wish to interfere it shoudl be limited to telling the lenders that it is their money, their risk, and their prooblem if it goes wrong. No bail outs, no support.

  • Grey Haired Underwriter 24th August 2010 at 3:51 pm

    GMS. Your considered response is welcome but unfortunately for a man of my advancing years I would point out that the 1991 recession was far worse for the mortgage market with repos being inordinately higher than they are now. The other issue is that there was little or no adverse lending either before or after that recession so everyone just had to get on with it. In fact I would say that two factors created the subsequent specialist lenders:

    1) The introduction of various prudential initaitives designed to prevent such a situation happening again (sound familiar?)and this identified a group of borrowers who were classified as Known Bad Debt. In effect this created the sub prime category
    2) the widespread introduction of credit scoring which effectively put 25% of the market outside of main stream criteria, because 75% acceptance was an optimum. That didn’t make the other 25% unmortgageable but sure as heck made it hard for them.

    marginal lending has always had its place but the fcat is that a lot of people don’t forget their responsibilities to the lender so why should the lender lend to them?

  • GMS 23rd August 2010 at 6:49 pm

    The comment implies that lenders can choose their own terms which is untrue. I agree sub prime of old was out of control but a total loss of it is not healthy for the market. The 1% proc fee would not influence my placing of a case in any way shape or form. Not being able to place clients at all is the worry. Proc fees should be levelled across the board so if there were a return to specialist lending there could be no accusations of placing for monetary gain.

    Agreed clients should try to get away from sub prime but at what point does a client become sub prime? This is a major problem and whilst there is no market for adverse clients the market will suffer, especially in the back of the worst recession in living memory.

    A properly functioning market needs to cater for a wide range of clients. I do not advocate a return to Unlimited and Heavy adverse in any way, but a Light adverse range would be beneficial for all concerned.

    My initial point was made about lenders making commercial decisions. Lenders lend and borrowers borrow. Simple. Both have a responsibility, and as long as both are happy they should be allowed to arrange a contract however they wish.

  • Grey Haired Underwriter 23rd August 2010 at 4:33 pm

    GMS – I am bound to say that your comments could be better thought out. Products and pricing are not the preserve of the FSA – they can dictate some elements of policy or even what shape the mortgage book can be but they cannot tell us the price to charge.

    And as for your question about sub-prime I would have thought that the evidence was out there of all to see. This specialist market was heavily responsible for the termination of inter-bank lending, securitisation and toxic debt. The simple fact that GMAC, SPML, Preferred, Mortgages PLC, Rooftop, etc no longer exist gives you some idea as to just how good sub-prime lending was. I hope that the loss of 1% proc fees doesn’t figure into your desires to see an unhealthy sub-prime market re-emerge. Personally I would like to see some of these irresponsible borrowers take responsibility for their profligacy and to start repairing their credit history so that they are no longer sub-prime.

  • GMS 23rd August 2010 at 2:57 pm

    But the government says pricing, terms and conditions of loans and mortgages are commercial decisions for banks and building societies.

    What hypocrisy. No lender is allowed to lend on their own terms. If the above statement were true why have we not got lenders for sub prime? The market is there, the appetite is there, but above all the barriers are there. Lenders are being told what to do by the FSA.
    Get this farce coalition government out ASAP.

  • Ian 23rd August 2010 at 2:53 pm

    Its not quite as balanced, or simple as that. While Banks do have to pay commission to brokers, they save on marketing, advertising, staff costs (salary and benefits)and admin costs. When there is not a lot of business to be done then its cheaper to utilise your under utilised staff.. hence duel pricing apears. When there is more demand the broker market is a cost effective way of increasing lending hence competitive deals and even exclusives to brokers. The issue the FSA should be looking at is that by banks following this process, it ultimately means that clients will get less competitive independant advice when times are tough and arguabley needing it the most. This is where the FSA is failing, but more worringly, doesn’t seem to be realising it.

  • anonymous 23rd August 2010 at 1:09 pm

    this cuts both ways, a lender has its own costs it has to deal with and prices its deals accordingly (but only sometimes – which is a seperate issue)
    but then it has to pay commissions, and surely anyone with a bit of basic maths ability will see that this would cost more for the end consumer. You could even turn the above comment around and ask “how are broker services TCF when you can go direct and not pay any extra fees or commission?”

    I am being fecetious of course but this is a double edged sword and on balance i agree with the government on this occasion (wow! that hurt even saying that)

  • Ray Lang 23rd August 2010 at 1:05 pm

    Another kick in bits to all the Independent Advisors out there. Thanks partly to the government we’re in this mess.

  • victoria 23rd August 2010 at 10:42 am

    How is dual pricing TCF? The FSA should be dealing with this.