Alex Broad: Which overseas markets have had the most influence on the UK?
Ray Boulger: The short answer to that has to be Australia. You still get people calling flexible mortgages Australian mortgages, which is quite annoying, but clearly we’ve taken that concept from abroad and developed it. But not sufficiently to reciprocate and move the Australian market towards offset mortgages. I think offset mortgages will be one of the big growth areas of 2003. Steve Sandiford: A key trend in the US is that they are keen on controlling ‘predatory lending.’ We are seeing parallels between what the Americans are doing and what the Financial Services Authority (FSA) is shaping up to do. We can learn some things from the US but they have a lot to learn from us too.
Alex Broad: What key trends should we we take from the States?
Peter Stimson: Positive margins for one. All the prime lending we are doing at the moment is so close to the bone there is no margin there to securitise it. Sub-prime is different due to the margins. But, lending in the US tends to be done at higher margins and is profitable.
Steve Sandiford: Nevertheless, what works in one country will not necessarily work in another. You cannot just take a model and plant it in another country.
Peter Stimson: We are in a unique situation because GMAC is taking its American parent’s business model. GMAC is seeing a change in how lenders are treating assets as we are taking assets, then wholesaleing them. GMAC is seeing more lenders taking up this model and selling assets to other lenders.
Stuart Johnson: I think it will increase. Some lenders want wider margin assets and they are not confident enough to go to those markets in their own right or have the experience to do it, particularly in the non-conforming market. The logical way to acquire that asset is to buy it. That will grow.
Peter Stimson: We try to almost create a market. Now lenders come to us and we have a pre-order book.
Alex Broad: Did you anticipate it taking off to that extent?
Peter Stimson: Yes, we did.
Andrew Drummond: What about feedback from customers on securitisation? It can be annoying, having recommended a two-year fixed rate to get calls from customers who have been contacted directly by a lender to extend their fixed rate.
Ray Boulger: I do not think it is annoying, it is clever. They buy a book and want to establish a relationship with a client and offer them the deal that they can either take or leave.
Andrew Drummond: It is clever from the lender’s perspective but from a broker’s perspective it is not.
Peter Stimson: But the lender is not allowed to change the key conditions without the client’s consent.
Steve Sandiford: It is not a common model yet in this country and it sounds as if borrowers are not expecting any of this to happen.
Andrew Drummond: Subject to how they are educated by brokers.
James Hanbury: Are brokers sufficiently well educated about the mechanics of securitisation?
Andrew Drummond: No, they are not.
Ray Boulger: What is more relevant to the customer is not whether their mortagage is going to be securitised, but whether the lender has changed.
Peter Stimson: We are working on the basis that it is the best deal for the customer at that time.
Alex Broad: How serious are UK lenders about moving into Europe?
Steve Sandiford: I do not detect any huge moves. I think most lenders are taking stock of where they are. That is not to say some are not looking at it.
Ray Boulger: It is difficult to see many European lenders coming over here. I think UK lenders have something to offer to Europe, but Steve would know better than me what the likelihood is.
Steve Sandiford: Not in the short term. I think should we accept the euro you will see a whole different ball game.
Peter Stimson: We are looking at setting up operations in France, Spain, Germany and Belgium, on the basis they will be standalone operations using local market knowledge. They will be part of the GMAC group, but not controlled from the UK.
Andrew Drummond: As a broker, we are moving into Europe by the end of the year. We have had experience of buying property overseas and the broker simply gave an introduction to the lender and got a 1% procuration fee. In the last year we have had a huge amount of enquiries from people wanting to buy overseas. Those who have already bought a second or third buy-to-let property in London and still have some money, and appear to want to buy in Normandy or Brittany. We will be moving into France and Spain.
Alex Broad: Which lenders will you work with?
Andrew Drummond: We will use lenders such as RBS, Barclays, Woolwich as well as French and Spanish banks.
Alex Broad: Are French and Spanish banks happy to deal with a UK broker?
Andrew Drummond: Yes. We have established a link with a broker in Paris and are servicing a demand that already exists.
Alex Broad: Why are more brokers not moving into Europe? Is it the language barrier stopping them?
Ray Boulger: There is a language barrier, but you also have to understand the legal processes and regulations.
Alex Broad: Is the fact that the UK has not adopted the euro a major barrier?
Steve Sandiford: It is a barrier. I think euro membership is closely tied in with this image of being in the centre of Europe. It would take us further into the mortgages ‘ not just the systems ‘ but also the whole business ethos of working on the Continent. I think we will join at some point, but before we do it is not just the financial aspect that presents barriers but a general change in attitude and outlook. People will see one barrier has gone, but there are still others. In a few years we may see quite a big change in outlook among customers, lenders and brokers.
Stuart Johnson: That cultural change will come but it will take quite a while.
Ray Boulger: The natural consequence of prosperity is that people will buy property overseas.
Andrew Drummond: We should not underestimate the impact of the budget airlines on buying abroad.
Peter Stimson: The trend for more people to work from home as technology improves will also fuel the trend as home does not have to be in the UK.
Alex Broad: In terms of online sales or research of mortgage products, are other countries storming ahead of the UK?
Ray Boulger: The only one is the US. I am not sure what the figures are but the States still has a relatively small percentage [of online mortgage activity] but more than continental Europe.
Peter Stimson: GMAC has around 3%, but it is more for accessing information and decision-making. Almost 100% of actual decisions are made online. We are planning to do online decisions rather than just decision in principal (DIP) soon.
Stuart Johnson: Many brokers will think it will take a long time to go through the whole thing. Customers still need brokers to explain what we do.
Steve Sandiford: I do not think that will change. I think the broker will still play a part and the uptake of online services will be quite dramatic.
Andrew Drummond: How many borrowers deal successfully online?
Ray Boulger: Very few. The majority of borrowers will always want face-to-face advice. The number of people online will increase, but it will never be the main way people buy their mortgage.
Steve Sandiford: Speaking to lenders, I think they have got past the point of thinking ‘we must have a website and what will we do with it?’ How are we going to make this means of communication easy for our customers and brokers to transact with us?
Ray Boulger: Electronic signatures are not going anywhere fast and I think there is a perception that because you cannot get a signature online there is a barrier. In practice it is not a problem because once we have the application there are certain things you must do. Even if you do not need references you need a valuation so you can be doing that work while getting a signature. Although it takes time to get a signature it is not necessarily causing delays if everyone is working efficiently.
Alex Broad: Is there any aspect of the UK model other countries have taken onboard?
Ray Boulger: The rest of the EU could take common sense from this market. When you see the stuff in the Consumer Credit Directive ‘ which if it goes through in its current form will effectively kill off flexible mortgages ‘ you have to question how much common sense the people who drafted that have. It seems ridiculous the most sophisticated and successful mortgage market, as far as customers are concerned, in the EU, could be constrained in this way and the tail is trying to wag the dog and take us back a few years. I would hope they will learn from us.
Steve Sandiford: I would be horrified to think it will go through in its current form, but that could be a sign of our lack of involvement ‘ perhaps we are not influencing people enough.
Ray Boulger: When I first saw this draft directive I assumed they had produced this rubbish on the basis they did not understand the UK mortgage market. But they believe customers should not have that degree of power and flexibility. There is a huge amount of education we must offer our European colleagues.
Alex Broad: Long-term fixed rates are far more popular outside of the UK. Do you think they are likely to take off to any great extent here?
Peter Stimson: It is to do with national psyche. Our German operation asks us why UK borrowers want a two-year fixed term because in Germany everyone wants 25. It is about how you view security and risk.
Ray Boulger: The other factor is that people in the UK are very conscious of the headline rate ‘ a reason why the two-year market is strong. Once you get the long-term rates down far enough people will look, for example, we had a flexible 10-year fixed rate at 4.99%, and that has sold well. There is a minority prepared to buy long-term security and take a long-term fixed if the rate is right.
Stuart Johnson: The majority of the market is short term and I do not see that changing. The market has changed and there is the propensity to move your mortgage more regularly and with the pressure to get rid of overhanging redemption penalties that has just made that more available.
Alex Broad: Can we presume the UK has the worst customer retention and highest level of remortgaging in the world?
Ray Boulger: Probably. But they do remortgage a lot in the US. Over the last year, starting in October 2001 there has been a huge amount of refinancing in the UK.
Ben Marquand: What effect will Basle II have on UK lenders?
Ray Boulger: My understanding is that it is just the lenders. It is about the amount of capital you have got to keep in relation to your assets and the strength of your profile. That means the bigger lenders have the advantage over smaller lenders or new entrants.
Steve Sandiford: You are right. It is only the big lenders who will benefit.
Alex Broad is editor-in-chief