Brexit uncertainty makes the role of brokers more critical but also more difficult – so where does compliance fit in?
Brokers have a difficult job at present: not since the credit crunch has there been so much uncertainty among buyers. The chief cause is, of course, Brexit.
Clients have no idea where the market is going and what it will mean for them. And who can blame them? The headlines change tack daily and even the leading economists seem unsure of the impact the UK’s decision to quit the EU will have.
Such uncertainty makes the role of brokers both more critical and more difficult. Clients need advice more than ever in order to make the right decision about a sale or purchase, but brokers also have the various regulatory changes of recent years to contend with.
The difficult part comes in knowing how much responsibility the broker should take. At present, they must stress test clients when assessing their ability to take out a mortgage. Under MMR rules, lenders must be comfortable that the client will be able to manage a mortgage in any eventuality.
But it is not just about getting the deal accepted. There is also the matter of treating customers fairly.
If you are helping a client to take on such a huge amount of debt, it is your responsibility to ensure they will not find themselves in financial difficulty as a result. Allowing your clients to take on a mortgage when the slightest change to their circumstances could send them into the red does not constitute treating them fairly.
All good brokers want their clients to make the right decision and few would find a way to get a mortgage accepted if they knew it was not in a client’s best interest to do so.
However, the uncertainty of today’s market makes it very hard for brokers to advise clients.
The credit crunch brought different challenges. Lending criteria were tight and house prices volatile but there was more of an idea of where things were going. It was not the first recession we had been through, after all. Today’s situation, however, is unprecedented.
I was asked recently for my comments from a compliance perspective on how brokers should talk to their clients about Brexit. I said they should explain that, while they were regulated to offer advice and recommend a suitable solution, the uncertainty following the EU referendum might have an impact on the market and this should be borne in mind before entering any transaction.
It is not the job of brokers to make predictions. However, it is their role to highlight the fact that things could change. This got me thinking about the role of brokers in helping clients make decisions about their future.
When extra stress testing was introduced following the MMR, there was much debate about whether lenders, via the FCA, were taking things too far. The newspapers indulged in a bit of scaremongering, with talk of clients’ diets being discussed, including how often they ate relatively pricey foods such as steak. There was also some shock-tactic reporting, with borrowers warned to expect three- or four-hour interrogation-style interviews.
The need for greater stress testing should not be disputed. The past few years have shown us what can happen when we think only in the here and now and do not take the time to consider what may be happening on the horizon.
However, there is also a question of client responsibility. How much should a broker step in and how much is it a client’s choice?
Brokers will probably find they have to address Brexit because clients will no doubt ask about it. But they should not feel pressure to make it a major part of their advice. Clients will have their own opinion and that is perfectly acceptable.
This is uncharted territory for all of us. Let’s not feel that brokers should have all the answers.
Phil Whitehouse is managing director at MCI Mortgage Club