Alex Broad: Do you think the current levels of remortgaging are sustainable, and what would be the long-term impact if they continue?
Peter Stimson: As long as lenders keep their policy offerings at one rate for existing customers and at a much lower rate for new business I think the market is there because I think brokers will take advantage of that fact. If anything you could argue that remortgaging levels will increase because once the customer has remortgaged it becomes more of a habit and they’ll be more likely to do it again.
Bob Perks: I don’t think current levels are sustainable long term. Most lenders are suffering attrition rates well above what they’re predicting; hence it’s not profitable to do that business. Eventually the market will change and move away from heavily discounted front-end business towards something more customer friendly.
Steve Sandiford: There are lenders out there who are suffering from attrition but benefiting from the acquisition of new business at great rates. Perhaps long, long term it’s not sustainable but I don’t really see it changing a lot in the medium term.
Alex Broad: When did remortaging really start to take off?
John Malone: Part of that major shift that’s taken place in the last two years is on the back of the demise of Mortgage Interest Relief at Source (MIRAS). Now it is not there, there is obviously this massive move to consider remortgaging. In two or three years’ time you’ll find that the level of remortgaging taking place will reduce considerably. I can see lenders reducing the level of some of the procuration fees that they pay for one or two-year fixed discount business being reduced significantly. It will always be active in the first and second time buyer market but I think lenders will pay a price for that because they cannot sustain paying that level of brokerage fee for that business.
Steve Sandiford: The other point to make is that we are all expecting that margins will be squeezed and that the differential between the front end and back end will certainly narrow. I think at that point the question of what makes a customer loyal will move, never completely, but it will move away from price. Lenders will be looking to engender loyalty with their customers to the way they treat them, the service they offer and the features that allow them flexibility. I think that’s the way lenders will be looking to stop this haemorrhaging.
Ricky Oakey: In our experience, lenders that proactively contact their customers some two to three months before the end of a particular deal, are relatively low in number. But I guess that if lenders were to get their act together and start to prevent that haemorrhaging we might see a shift in the dynamic of the market.
Bob Perks: On current rates it would be madness to do that. To offer new business rates to existing customers is more expensive than letting them walk to somebody else.
Peter Stimson: But, if they’re going to walk anyway you’re much better off retaining that customer because the cost of acquiring a new customer is that much more expensive.
Sally Laker: I think several years ago people felt they should be loyal to their lender. Now we’re in a much more throwaway society and everything is more short term. The broker has a service to provide and if consumer demand says ‘I want the best rate that’s out there’ it’s going to happen.
John Malone: I can see that in the first and second time market for obvious reasons because price and rate is very important. Once you move into the third or fourth time, there are other disciplines within your mortgage that become more important.
The consumer will end up going to the lender if he wants to get a better deal in the future. If you are a rate tart and you’re just moving from the Abbey to the Halifax or the Woolwich to Northern Rock, you are providing information you’re not providing advice. I think it’s an opportunity for the lending fraternity to price their products and the payment accordingly.
Bob Perks: I think lenders need to stop acting like babies, throwing their toys out of the pram. We’ve got to arrange partnerships that work for the lender, and work for the intermediaries. There will be arrangements because, for example, people don’t want to chop and change their term assurance arrangements every two years do they? Life insurance companies pay ongoing income to leave it where it is. That’s what lenders need to look at.
Rob Clifford: I have a painful dichotomy as an intermediary in that my job is to make sure the client is getting a great deal and saving money. And it’s my job in terms of having good partnerships with lenders to also to ensure that the lender stays liquid and makes money.
Steve Sandiford: I don’t think lenders would have a problem with that. Lenders would be looking for partnerships ‘ the partnership of the future would give fair remuneration for the broker, a fair deal for the customer and a fair profit for the lender. We are moving towards forging positive partnerships with people who want to deal with lenders on that basis.
Alex Broad: So it is unlikely lenders will stop doing business with those brokers who have a high level of re-mortgaging?
Peter Stimson: I think we’re trying to blame the broker for essentially what is a problem with the product.
Rob Clifford: On that subject of blaming brokers, some of the largest lenders in the country are advertising in the national press every day saying ‘switch to us to get a better deal.’
It would be quite wrong to hold brokers responsible for creating or sustaining the remortgage market. Lenders manufacture the products and brokers happen to distribute 55% of them.
Mel Bignall: It’s an integral part of the market and it’s been an integral part of the market for years. The loyalty isn’t there. I can remember when the average age of a mortgage was seven years and that’s not that many years ago. It’s now dropped to two or two and a half.
Alex Broad: So what sort of changes can we expect in terms of product development?
Bob Perks: I think products that give general value over and above just the cheapest repayment ‘ the current account mortgage, the flexible mortgage, those sorts of things are great in terms of the number of remortgages.
Rob Clifford: Lenders may get some help in shoring up the unwelcome outflow with statutory regulation. It’s not inconceivable that the FSA would want the intermediary to illustrate the client was getting a better deal than yesterday. That control doesn’t exist today. The mortgage code does not seem to even define best advice let alone police whether advice has been best or appropriate.
Sally Laker: From the consumer point of view I don’t think they have appreciated what loyalty is. At the moment as an intermediary if a consumer said to you ‘what do I get for staying with this lender?’ it would actually be quite difficult to demonstrate.
Mike Boles: At the moment if you compare a flexible product with all the bells and whistles that doesn’t have a very interesting rate, against something that’s pretty damn flexible, that doesn’t have all those bells and whistles, nearly every time people will go for the rate.
Stuart Glendinning: I think there are too many lenders that are still competing on price. How often do we get to a situation where a lender launches an attractive product, it’s popular, it gets swamped with demand and then they can’t cope on the administration side and it all goes to pot? There’s definitely scope for providers to widen their margins by being more efficient.
Steve Sandiford: From the lender colleagues I speak to, they know they’ve got to be more efficient. They’ve also got to make life easier for the brokers because some brokers aren’t very efficient either. We’ve got to make it work for all parts of the chain to make sure the lenders are efficient, the brokers are efficient and the customer is getting what they need.
Ricky Oakey: As an intermediary, if we’re dealing with a consumer who wants a mortgage tomorrow then as an intermediary we’re duty-bound as part of the advice to talk about service levels.
Steve Sandiford: There are inefficient lenders, there are also inefficient brokers and even inefficient customers. Those lenders that don’t make the steps to commission, they won’t be there, they won’t get the market share. So I don’t think it’s helpful to say lenders are inefficient and therefore how dare they consider squeezing procuration fees because the market will take care of that.
Alex Broad: To what extent has technology and particularly the internet encouraged remortgaging?
Peter Stimson: At the moment the internet only accounts for about 1% of mortgage business. But it does provide a wonderful comparison service for services consumers.
Stuart Glendinning: I think what the internet delivers is not just the ability to compare, it does actually source customers. You’ve got a whole raft of new intermediaries out there, that didn’t previously exist, such as Yahoo and Freeserve ‘ they’re now mortgage intermediaries.
There’s no doubt that the internet will increasingly source significant volumes of consumers who will be routed to intermediaries rather than the lender.
Alex Broad: Does anyone disagree?
Rob Clifford: People are concerned about security, lack of familiarity, but as the next generation comes through I think they will be a lot more prepared to use the internet and use the information that’s out there, you will get more consumers using it, sometimes avoiding brokers.
Ricky Oakey: Charcol already completes several hundred mortgages per month online. It acts as a medium for people sitting face-to-face so it’s very powerful and shouldn’t be underestimated.
Alex Broad: Does anyone expect the amount of remortgaging a customer has done to form a bigger part of the underwriting process in the future?
Mike Boles: It already does for some lenders. I imagine it goes into credit score black boxes unknown to us.
Steve Sandiford: It certainly features in credit scoring in terms of the number of footprints people have made.
Peter Stimson: There are products out there now that say ‘purchase only’ because lenders presume they can keep the customer for longer if they haven’t made the decision to remortgage before.
Mike Boles: Of course some lenders change their mind and say they’re not doing any remortgages for a while, maybe to make a point about ‘rate tarts’, or maybe because they’ve got too much business on. But they tend to come back into that market.
Ricky Oakey: Is it more of a client profiling issue than one of underwriting from the lender’s perspective?
Bob Perks: I think that’s right. It wouldn’t be whether the risk was a good one, it’s client profiling.
Steve Sandiford: You’d have to separate those who are just remortgaging and those who are constantly gearing up to remortgage. In the current environment lenders are quite happy with that. But should recession bite I can see a point where lenders will look at those people and say, ‘well are they serial debt increasers and is there a possibility that this will go belly up?’
At that point you will see it playing a much bigger part in the underwriting process, but I don’t think it does yet.
John Malone: Currently second mortgages are outside the FSA’s remit, which means we could be creating a massive new industry for intermediaries who aren’t totally qualified to get into the second mortgage market. That’s something that will be debated by people like us and it’s something that needs to be taken on board by the FSA. They are either in, or if they’re out I think lenders will benefit from that but the consumer won’t.
Alex Broad: Does everyone agree?
Steve Sandiford: Well, lenders might benefit from that but it’s a question of how closely they want to be associated with something that is not going to be regulated. Lenders will have to be quite careful about that.
John Malone: You’ll get European lenders coming in. The markets are opening up. It’s also offering an opportunity for the lender and certain sectors of the intermediary market that doesn’t necessarily want to be regulated.
Rob Clifford: Or can’t make the grade.
Alex Broad: What do you consider to be the solution for either managing remortgaging or encouraging customer loyalty ‘ will it be developing new products, a revision of fees, more selective client profiling or perhaps more trail fees?
Steve Sandiford: From my point of view the key to customer loyalty is about partnerships to make sure all three parts of that partnership are treated fairly and remunerated properly. That’s the key.
Bob Perks: I think part of that will be developing more innovative, customer-friendly type products. If you’re just comparing a vanilla product against another why wouldn’t they keep moving for a cheaper rate?
Mike Boles: We can talk about trail fees until the cows come home but if someone comes to me and says I’m thinking of remortgaging and I can get them a better deal by taking them away from their current lender then I’m duty bound to do so. It doesn’t matter if I’m getting a cracking fee.
Rob Clifford: The Australian market is a good model because they’re about four or five years ahead of us in terms of this particular issue and they pay about 0.1 versus 0.4 for an upfront fee.
Arguably the aggregated effect of all those trailers is worth having and you can earn the same on sales after three years or so as you can from an upfront fee. It makes a pretty compelling argument to avoid systematic churning, but I think we’re a long way away yet.
Peter Stimson: The broker is trying to look after the best interest of their clients. I can’t see a trail fee, unless incredibly large, deterring a broker from effectively remortgaging clients with a better deal.
Stuart Glendinning: I think it will be difficult to put the lid on remortgaging because it’s so much easier to compare the market now. I agree with giving the intermediary the option of a short term or long term fee and combining that with longer term benefits.
Ricky Oakey: Lenders may choose to segment their client bank to the point that they decide that they actually want to actively retain some elements of their customer bank and be less bothered about other areas.
As lenders become more sophisticated and have systems that enable them to do that, it might lead them to make different decisions about the means by which they can retain those clients. That would require different products than currently exist in the market.
Mel Bignall: From a customer retention perspective I think lenders need to have a much more proactive strategy in place. It’s something that’s been on the back-burner for a long time, but it’s only started to come to the fore in the last couple of years.
We’ve got to make it very, very easy for existing customers to come back to you for additional lending and you’ll improve your customer retention as a result.
Sally Laker: I think lenders do need to decide how or where they need their market share and therefore I do think further advances are a way forward and I think they need to reshape the offering to the consumer.
John Malone: That in some ways would neuter the potential second mortgage market, if that opportunity was better placed.