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FSA warns of return to aggressive dual pricing

Funding pressures in the mortgage market could trigger the return of aggressive dual pricing strategies, the Financial Services Authority is warning.

The regulator has today published its Retail Conduct Risk Outlook, which analyses the main risks facing consumers and firms over the next 12 to 18 months.

The report says that mortgage intermediaries, and networks in particular, continue to face a number of market challenges.

It says: “Survey findings suggest that the persistent uncertainty in market conditions continues to have an impact on mortgage intermediaries. This reiterates concerns that developing and maintaining a sustainable and compliant business model will likely remain challenging for mortgage intermediaries, particularly for network models.”

It highlights dual pricing as a particular threat to brokers.

The report says: “At an aggregate level, mortgage intermediaries are challenged by competition from lenders’ direct sales with further funding pressures in the mortgage market potentially triggering a return of the aggressive dual pricing strategies seen in 2008 where lenders offered more competitive products via their branches.”


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  • Steve Reynolds 16th March 2012 at 9:44 am

    Guys the answer is simple. stop supplying Natwest and Santander and the likes with mortgages. Their overall costs will rise and so will the direct products provided as a result of your subsidy to their business model

  • Ancient a mortgage broker in N3 14th March 2012 at 2:11 pm

    Having worked in banks, yes – sell the mortgage, but you are demanded to FLOG insurance policies – even knowing that they were awful value and innapropriate…thats why I went independent.

    Roll forward 15 years on and look what happened – PPI!, Endowmment Misselling – thats right folks, its one misselling scandal after another – and thats because banks have sales targets for their staff to jutify their salaries. If you dont FLOG insurance and other products, you are out of a job and so the cycle continues.

    Paying a proc fee to an intermediary without staff actually SAVES a lender money – but no, banks wish to offset their taxes via costs!

  • bobby 14th March 2012 at 2:11 pm

    I am sorry to say that mortgage brokers will become exstinct in the next five years. New mortgages will continue at historic lows with most being done by dual pricing banks and re mortgages will be at all time lows despite interest rate rises as 8 out of 10 people will not be able to re mortgage now because of new criteria. New mortgages will be around 30000 and re mortgages will fall to under 20000 a month. The 8000 brokers left from 35000 in 2007 have to realise its over now and no matter how harsh or unfair that is I would recommend every broker left looks for an exit route soon before it bankrupts you or kills you first.

  • Ancient a mortgage broker in N3 14th March 2012 at 2:03 pm

    ..yes, go to your high street lender – get a mortgage. Then get flogged innapropriate insurance products as well – and next step is bank is fined a paltry sum and its business as usual.

    and teh CLIENT loses out in the end. Great thinking !

  • Mike 14th March 2012 at 11:39 am

    An initial ‘saving’ for the customer but in the end the customer will have their ‘eyes wiped’by the lenders on buildings & contents, life & critical illness cover etc. No doubt these products will not be competitive (remember PPI etc?) and the customer who went direct will pay and pay and pay. What ‘consumer’ doesn’t realise is that brokers are and have been the custodians of good advice and fair mortgage rates. Without us to ‘police’ the lenders,always obtaining the best deals for our clients and being the main source of mortgages for the lenders,has made the lenders offer competitive rates to obtain businessand maintain market share. Without us, mortgage rates would be much higher.They have high overheads to coverstaff, buildings, running costs etc. but we are only paid for the production of a mortgage which can involve up to 6-8 hours work fact finding, comparing all lenders deals, completing application forms, general paperwork, obtaining underwriting requirements, processing & follow up. Therefore what they pay us for the procreation of a mortgage is negligable and the saving to them in time & expertise – a lot. Loose us at your peril!

  • Cynic123 14th March 2012 at 8:55 am

    And what will the FSA do about this issue ? Nothing ! They are the modern day version of the Emperor Nero ! Only in the Financial Services Industry could the regulator be deemed “not fit for purpose”, be disbanded, but before they are dispensed with, be asked to perform and implement a root and branch review of the Mortgage Market! Who said Classic British Farce is dead !

  • Tim lynch 13th March 2012 at 8:24 pm

    Innocent Bystander 3:54
    A well put together response, but having cut my teeth in mortgages with a high street bank I can assure that distribution is definitely cheaper via intermediaries!

    I once challenged the regional director at the Bank to reduce rates in house in order to save proc fees to brokers, and how he laughed;

    “it’s cheaper for us to bring in business via brokers as we dont have to pay you, your PA, the compliance officer that monitors you, and redress on all the iffy fixed rates your predecessor sold”. Now get selling some PPI or you will get 20 lashes at your next appraisal!!!

    So glad I am always able to provide best advice – sure Its frustrating that I have to advise clients to go direct, but they always come back to me for protection review and no doubt the branch advisor will continue to get 20 lashes having provided a loss leading mortgage without selling overpriced insurance!!!

  • Mike 13th March 2012 at 7:08 pm

    Consumer’s View | 13 Mar 2012 1:03 pm
    Just a little note to let you kniw this. Lenders gave to staff offices, pay electricity, telephones, rent, rates, pensions etc and the cost of this is A LOT MORE than paying a broker a fee per mortgage. Brokers give independent advice and generally save the client money. Incidentally, because the broker dies this, the lenders have to keep their rates low or they don’t get business from brokers (approx 60% if their business). What they are doing is offering a slightly better deal to you (initially) so that they have unbridled access to you life/critical/building & contents (and remember PPI?). Unfortunately you thinking is like a turkey voting for Christmas. Remember corner shops where they were handy and you could buy anything – remember buying 9 screws at a cheap price instead of having to buy 2 x packs of 8 at an expensive price? The cost of a mortgage directly doesn’t reflect the true cost (yet!) and the broker does all the paperwork and deal searching for a small proc fee. But when the broker is gone, you will be fare game as the lenders ‘divide the spoils’, with no balances and checks being done that the broker carries out. Vote for Christmas NOW!

  • john smith 13th March 2012 at 5:13 pm

    we are all suffering because of dual pricing but I guess we as brokers cant tell a bank how to distribute or price its products. a pair of levis is not the same in every shop is it. on the other hand its only because the FSA are drumming the TCF drum that a problem arises.

  • Phil Shelford 13th March 2012 at 4:14 pm

    I agree with GHU. Dual pricing has existed for years, some we win some we lose. Our clients use us for our knowledge and help in completing what can be a stressful transaction. So what if they could have save £10 a month going direct, I have had lots of clients experience the banks first hand only to come back to me asking me to deal with it and the extra monthly cost is well worth the saving in their time and hassle. As for TCF it has nothing to do with pricing guys so stop rolling it out every time something doesnt go for us brokers.

  • Innont Bystander 13th March 2012 at 4:13 pm

    @IFA’s do it better – struggling to make sens of your bold statement that fised rates are not suitable!

    WOuldn’t disagree that they are right for everyone but surely that is down to the individual’s attitude to risk. There are some people who need to know that they have no chance of paying more for the period of the fix even if it means costing more. You can’t guarantee rates won’t go up even if you and everyome else doesn’t expect that to happen.

    My parents, along with many others of their era, were offered a fixed rate at plus 0.5% for life or a variable rate in the 1950’s. They chose variable and lost out in a big way but many others chose the fixed deal and benefited. Did they think the lender was at fault – not at all. Did they believe they made their own decision and were responsible for that – absolutely. Was all the convention telling them that variable was better because interest rates were nopt going to go up – of course it was.

    Nobody really knows what is or isn’t going to happen but I do believe consumers ought to be able to work out whether they prefer the risk of fixed or variable rates for themselves and be responsible for that.

    It is also fair to say that not everyone who walks into a building society or bank buys add ons although clearly there are/were some bad selling practices. The banks do have deep pockets though to pay up when they get caught doing it wrong.

    Also agree with Grey Haired Underwriters comments.

    Would also add that there are numerous cases of bad advice and fraud from mortgage intermediaries so you can’t paint all intermediaries as the best thing since sliced bread and all lenders are going to stitch you up if you go direct.

  • Innocent Bystander 13th March 2012 at 3:55 pm

    To @ Tim Lynch 1.44

    Not sure you have your costing view right. Lenders generally have to have staff in branch to deal with a whole variety of things so using their spare time to distribute mortgages is not such a big extra cost.

    Given their sunk costs which aren’t going to go away it is only the opportunity cost of what else they would be doing if not selling a mortgage.

    If you took their pay costs (and ignored overheads that would be incurred if they were there or not) I bet its a lot cheaper than your proc fee!

  • Innocent Bystander 13th March 2012 at 3:54 pm

    To @ Tim Lynch 1.44

    Not sure you have your costing view right. Lenders generally have to have staff in branch to deal with a whole variety of things so using their spare time to distribute mortgages is not such a big extra cost.

    Given their sunk costs which aren’t going to go away it is only the opportunity cost of what else they would be doing if not selling a mortgage.

    If you took their pay costs (and ignored overheads that would be incurred if they were there or not) I bet its a lot cheaper than your proc fee!

  • Grey Haired Underwriter 13th March 2012 at 3:21 pm

    to anon at 1.48 Hear Hear… well said. And as for some of the other comments I believe it is time for some brokers to wake up and realise that not all of their brethern give good advice and many think that Trigold is the be all and end all of the whole market – irrespective as to how many lenders are or are not on the sourcing system. As it happens I’m not a great fan of dual pricing but would defend the right of any retailer to charge whatever price they consider apropriate. Dual pricing is taking place in all parts of life – internet vs high street being the classic.

  • IFA's do it better 13th March 2012 at 3:06 pm

    @Consumer’s View:- providers have spent decades brainwashing the public into thinking that the deal is better if you go direct. They have drawn the masses into products that are not suitable (fixed rates), no redress (non-advised) and cross sold (MPPI and the rest), employing a specialist pays for itself, you have access to knowledge and experience and someone you can trust and build a working releationship with, I have no doubt of this.

    If product providers were forced to compete in the open market on level ground we would have cheaper deals all round, every financial transaction would follow an identical process, the consumer would have more choice and middle men would take full responsibility and be held accountable.

    Its a tough ask to get your head round this because the power of persuation is all around us and I dont think the people at FSA are immune to it, appears they want to be persuaded.

  • shock horror 13th March 2012 at 1:48 pm

    Good to see more examples of “this isn’t TCF”, the flatpack answer to everything these days!

    Hopefully the “this isn’t TCF” brigade will one day read TCF and understand what it actually is and what it actually does.

  • Tim Lynch 13th March 2012 at 1:44 pm

    What really gets me is that the rates available direct are clearly below funding costs, and it is a complete falacy to suggest that distribution is cheaper to lenders direct given the overhead of branch staff etc… as this cost far outweighs 0.3% proc fee!

  • Stuart Duncan 13th March 2012 at 1:37 pm

    This is not a discussion about cans of beans, but about life events (funding the purchase of a home).

    Either a market is regulated or it is not and it is no more costly to market through intermediaries.

    The primary issue is the incentivisation of non-advised sales.

    Incidentally, the FSA should be intervening in the insurance market in this way too. The potential cost to consumers of getting their insurance wrong is absolutely horrendous. If your house burns down or you smash into a Rolls Royce or your breadwinner dies, any failure to have made proper provision simply through wrong product choice or application error could be life-shattering.

    “Consumer’s View” is a misnomer. It is a rather foolish attitude that the unqualified consumer is somehow automatically competent to recognise the pitfalls of financial products.

    I have always found that attitude a tad bizarre.

  • Consumer's View 13th March 2012 at 1:03 pm

    If the cost of distribution is cheaper direct surely the customer should be able to benefit from that in a proper transparent regime? Why should borrowers have to pay to subsidise sales via intermediaries?

    The FSA are not a price regulator (yet) and don’t stop general insurers from pricing car insurance at diffeent rates through different channels, including offering higher rates for renewals than by going back and re-buying direct on line. So how could they justify intervening here?

    Of course it may be that direct lending is not a cheaper distribution channel in which case that may raise some issues of fairness.

    If someone wants to pay for advice then that’s fine but don’t force everyone to pay for something they don’t want. Some people always choose a brand they are comfortable with rather than necessarily the cheapest.

    The biggest scandal of the MMR is that customers will be forced to have and pay for advice when they are perfectly able to choose a loan that suits their needs.

  • Glen McKeown 13th March 2012 at 12:27 pm

    Is this not the normal process of a free competitive market?
    The manufacturer sells products at a discount, if they have sufficient outlets. The consumer buys at the preferential rate – if they can find it, and if they want to take charge of all the hassle that accompanies the direct purchase of a product.
    Or they go to a broker who knows the market and can deal with a range of companies, can advise on a range of suitable products and all the ancillary administration.
    Sometimes you win and sometimes you lose.
    So long as the process and the costs are transparent the consumer should be entitled to a choice.
    The FSA’s fetish with the perfect scenario is actually the most distorting factor of the whole scene. If consumers want independent advice and free access to the market, charge them for the advice.
    If brokers do not like the way some providers operate, do not use them. The market is big enough to offer other solutions.
    If you do not like the way the FSA are interfering in the market, band together and take them and the Director of the Office of Fair Trading to the European Court as being in breach of the terms of the FSMA 2000.

  • Jon T 13th March 2012 at 12:26 pm

    When Hector Sants was challenged three or four years ago on how exactly dual pricing is supposed to square with TCF, he said words to the effect that it was ultimately up to the lenders how to price their products.

    So basically it’s like Apple saying to Currys and PC World “Well, we ordinarily retail this type of IPod for £80 in our branded stores, but seeing as you offer a fair choice by selling our competitors’ products as well, we will only allow you to sell them for a minimum of £110.”

    In effect, enabling them to punish consumers for having the audacity to seek independent advice. Because, you know, that’s really fair.

    Nice work, Hector.

  • True IFA's do 'it' better ! 13th March 2012 at 12:18 pm

    the only way customers can get true choice is if you remove the provider from from the advice process, all products inc mortgages should only be available in a whole of market scenario.

    The responsibility for the advice is between the client and the adviser, the product provider should be the third party in all financial transactions.

    This will end confusion and make products much fairer and better value.

  • AA 13th March 2012 at 12:12 pm

    Yesterday we hear the news banks avoiding advised sales process and today the FSA states dual pricing will be far more aggressive.

    The two go hand in hand to me and im absolutely sure secret hand shakes are taking place.

    Its unfair for all mortgage holders.

  • Ricardo 13th March 2012 at 11:47 am

    They are absolutely hopeless. Rather than just putting a stop to it, they make watery statements that don’t and won’t have any effect at all. Imbeciles.

  • Robert Sinclair 13th March 2012 at 11:43 am

    Or perhaps the FSA could rush in the “customer best interest” rules in the latest MMR proposals and use these in conjunction with the “acting with integrity” principle to encourage lenders adopting aggressive dual pricing to fully justify the financials behind their approach. Perhaps the FCA might use their new teeth wisely?

  • Anon 13th March 2012 at 11:42 am

    Am i the only one who simply cannot get my head around this? Over the past 12 months we have been reassured by Lender after Lender that they are supporting the intermediary Market, we have been told by the FSA that they feel it of great importance that clients are able to receive independant advice and the importance of ‘treating customers fairly’ and yet the very people making these claims seek to to do the opposite! Why can we not have a lender offering the same products and giving the customer the ‘choice’ wether to go direct or wether to seek advice? do away with Proc fees if you like and charge the client the £999 arrangement fee if you wish but give the client the option to pay this either to the lender or the broker by either going direct or seeking advice. surely this would be a demonstration of really treating the customer fairly? It’s not really about TCF at all and never has been. It always has and remains to be purely about profit.

  • John Lacy 13th March 2012 at 11:41 am

    What do they mean “aggressive dual pricing may return?”. It has already and has been that way for the last 6 weeks at least.
    Nice to know that the FSA have their finger on the pulse and are aware of market developments isn’t it?
    What a bunch of incompetenrs!!!!

  • gary 13th March 2012 at 11:40 am

    Are the FSA actively looking at creating this agressive dual pricing?

    It appears they want to reduce the number of mortgage advisers.

  • Stuart Duncan 13th March 2012 at 11:37 am

    Hello FSA, dual pricing and direct dealing are already rampant amongst lenders. Even Woolwich are making it near-impossible for brokers to book funds, but their branches do not have this issue. That equtes to a non-level playing field.

    I guess it is something that they recognise the issue but, sadly, this whole scenarion has been encouraged by neglect of their own regulation. If the FSA had properly monitered the abuse of non-advised sales, lenders would not have been so ready to use this as a cheap, easy and risk-free option.

    My view is that the regulator should be insisting that all products are available to independent advisers, so that consumers can be properly supported through an increasingly onerous process.

    Lord knows how many application and valuation fees have been lost by unsuspecting applicants.

  • Bobby 13th March 2012 at 11:30 am

    I actually read this as the FSA are pleased agressive dual pricing may come back as it will mean even more intermediaries will go to the wall and the cleansing of the market of brokers can be completed.

  • Stuart Gregory 13th March 2012 at 11:20 am

    So then..we wait with baited breath to see how the FSA will address this issue…

    *cue muttering for a week or so before it’s swept under the carpet*

    TCF? Treating Customers Fairly? More like Total Complete Fabrication…