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Minds over matter

by: By: James Mayne, director of compliance services at Competent Adviser
  • 17/11/2003
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The Mortgage Event 2003 provided the ideal focus for the concerns of mortgage advisers as the industry moves inexorably towards statutory regulation

Taking in seven regional venues across the country, including Leeds, Bristol, Glasgow, Brighton, Birmingham, Manchester and London The Mortgage Event 2003 attracted well in excess of 2,000 mortgage intermediaries. Attending delegates came from the entire spectrum of mortgage advice, from the one man bands to the large multi-broker firms, but the main thing they all had in common was a desire to find out more about the environment in which they work and how it is likely to be affected over the next 12 months.

When asking delegates what brought them to the Mortgage Event, one reply was it was that it was a good opportunity to take a rest. The adviser in question explained that the phones in his office do not stop ringing, and attending was the only way of getting away from it. Of course the delegate was joking but it does raise a number of questions. How many mortgage brokers do not attend events put on to discuss the future of the market simply because they are too busy? And what effect is the thriving market having on firms who need time to consider the impact that statutory regulation will have on their businesses?

This is a worry but those with an interest in the intermediary market should take comfort from the fact that business is booming and fewer advisers will be inclined to leave the market completely on 31October next year. After all, where else can anyone find an industry growing this fast?

Senior figures

The Mortgage Event brought together senior industry speakers from the Council of Mortgage Lenders (CML), the Mortgage Code Compliance Board (MCCB) and the Financial Services Authority (FSA) who addressed delegates coming from the length and breadth of the UK. And so it was no wonder that most attendees turned up with a primary objective of hearing the latest on regulation. It is the leading topic that dominates the industry at present and with good reason. As one delegate put it: “I am here mainly for the discussion on regulation – I need to know what we need to do.”

But that was not the only reason that drew in the numbers, a straw poll conducted at several of the events found some brokers were also keen to attend partly because it was not just a regulation conference. The conference sessions also had experts who provided a market overview and information on the latest economic theory, as well as offering the opportunity to question members of the industry directly. And there is little doubt that many advisers also enjoy the chance to interact with their peers and discuss products and processing with lenders.

The latest trend among industry commentators is to predict the percentage of intermediaries that will be directly authorised by the FSA as opposed to joining those planning to join networks and becoming appointed representatives. Everyone has their theory but rarely is it clear where these figures come from or whether the number of respondents was particularly wide ranging. However, a straw poll conducted from among the 2,100 delegates found that nearly half of all respondents are already directly authorised or are existing network members for the selling of investments. And it seems, from the responses received, that most questions asked of the panel of experts started with: “I am an IFA.” This seems to indicate that those who are already familiar with the FSA are more likely to find out what they need to know rather than those that are not. It would be presumptuous to suggest that these views are representative of the total market, however, they are actual views and they may well be shared by others.

It has to be said that a large number of intermediaries have yet to make up their minds as to which route they take. As one undecided delegate said: “I will probably join a network but would like to be directly authorised.” This view is typical of many other delegates and there are a number of options available to help them with this, but a number said they simply do not know enough to seriously consider direct authorisation. Is this because the information they need is not out there (the FSA would probably disagree), or is it because some advisers are not yet looking hard enough? On a more positive note, other attendees were more definite and most of those that liked the thought of direct authorisation said that “keeping their freedom” was the main factor. Losing your freedom is obviously a big concern but I am not sure whether this is a myth or an actual reality -it really depends on whom you sign up with.

Worrying myth

One myth that was repeated several times at different Mortgage Event was the belief that the FSA will only authorise a limited number of small intermediary firms. The FSA categorically denies this, but it is worrying that these types of rumours are still circulating.

It can sometimes be a mistake for the industry at large to assume that the small intermediary firm or sole trader does not keep themselves up to speed with the regulatory proposals – this is often not the case. The majority of delegates were aware of the final rules and have read the consultation papers, but what they are now looking for is some kind of encouragement that they can cope with direct authorisation. However, others said that they also preferred the direct authorisation route but thought that it was beyond them. As one delegate admitted: “I would need some practical help, someone to talk to, someone to check things with and someone to prompt me.”

Nevertheless, statutory regulation was not the only talking point. During the question and answer sessions at both Brighton and Bristol delegates was prepared to stand up and disagree with the economics expert. A forecast of a 2.25% interest rate rise in the next couple of years did not go down well with delegates and prompted some concern, but having a handle on the economy and future interest rate changes is an important part of the adviser”s toolkit and a key part of financial planning. Interestingly, there were also debates on self-certification mortgages and the stretching of criteria by lenders in this low interest rate environment. The FSA will clearly focus on the aspect of affordability within its rules and as one delegate correctly pointed out, whatever the lenders criteria, as advisers there has to be confidence that the borrower can afford it. This will take on even greater importance if the average borrower”s payments face over a 50% increase in the next couple of years.

With the FSA classifying lifetime mortgages as high risk, it was also good news to hear advisers who say that they plan to get more involved in this tricky area of the market. With loan sizes on the small side and an often time consuming sale, it is little surprise that this market is still small when compared to remortgage business for example.

There is little doubt to me that those who attended The Mortgage Event got a lot out of them, and while a number admitted that they tend to use the various industry magazines to keep up to date with industry and regulatory issues they agreed that there is nothing better than hearing from people face to face. It was disappointing to discover that relatively few delegates had used the FSA website and few had received help directly from lenders. One delegate stated that in his opinion lenders are not doing enough to help advisers and he sometimes wondered whether they want to help the intermediary sector or not.

However, while the industry is focused on the impact of events from within the UK, one IFA from Shoreham was already looking ahead and arguing that the biggest worry is not the FSA, but Europe.

Now there is a thought.

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