Lenders such as Barclays and Santander have sent direct marketing to broker-introduced customers, between three and six months before the mortgage product term is due to expire, offering them rate switching services. In the case of Santander, borrowers have received letters offering them a new rate without the risk of incurring penalties if they switch six months early. Barclays have opted for instructional videos emailed to borrowers three months ahead of the product term expiration date.
Intermediaries are worried about the damage this will do to their businesses, many of which are underpinned by client loyalty. Unsurprisingly, their initial reaction was an emotional one, but is this enough of a reason to boycott a lender asked some?
Heart versus head
Gemma Harle, managing director of TenetLime, says definitely not, but that is not to say brokers cannot factor this type of lender behaviour into their advice.
“These types of client retention strategies are not new,” says Harle. “This has been going on for years, but I think it has finally reached the broker’s attention – not all lenders are working in partnership with them and it is starting to hurt their businesses.”
Harle says brokers can take the decision not to deal with lenders by removing them from their panel but then you have to consider whether you can call yourself whole of market if you don’t have some of the UK’s largest lenders on your panel.
The preferable alternative, says Harle, is to keep them on your panel. If it comes down to a choice of a few suitable lenders with similar rates, she explains, one of which is a lender that you have lost confidence in because it contacts clients too early, it is justifiable to discount that lender.
Letter of the law
The Mortgages Conduct of Business rulebook (MCOB) does not place an obligation on firms to describe their service as whole of market. Instead a firm needs to tell the customer whether there are any limitations in the range of products that it will offer (MCOB 4.4A.1R). Under MCOB 4.4A.5G) a firm may be able to describe its product range as unlimited even if it offers customers only a selection of the mortgages available on the market. But where firms do use this approach they must ensure that their selection is representative, is regularly reviewed and does not materially disadvantage the consumer.
Advice issue
Mortgage and protection intermediary John Azopardi, New Leaf Distribution, says aggressive early marketing interferes with the advice he has given. He says it also disrupts future opportunities to reassess the client’s circumstances to establish if their life has veered off in a different direction since the last meeting.
“Fundamentally you have to do what is right for the client,” he says. “So if that is to remain with their lender, irrespective of whether we get paid by that lender, that has to be the advice. But I think that brokers need to take the lender’s retention approach into consideration when recommending them to their clients.” Both Harle and Azopardi believe rolling a client onto deal after deal every 18 months with an easy switching service poses a risk to consumers. “They could wind up with a client who has not received any advice for 10 years,” says Harle.
Azopardi said the product term and the product fee selected by the broker are tied up with the advice tailored to the client’s circumstances, with the lender in the dark over why the two, five or 10-year product has been chosen. “How can the lender be sure it is not compromising advice by targeting customers so early?”
He explained that if the client has only a relatively short term left on the mortgage the effect of charging a client another product fee can be financially detrimental. “If they choose a two-year product, during which time they intend to repay sizable amounts of capital, then the lender entices them into a new deal after 18 months, adding another fee onto their balance could be counter productive.”
Peter Kelly, director, PJK Associates, who has been affected by Barclays’ recent direct video marketing to his clients, says there is a justifiable reason to avoid using lenders adopting these strategies, beyond being annoyed that they did not value his contribution to their lending volumes.
“I don’t think you can count on the consumer jumping into a new deal having checked out the early repayment charges involved and the options of switching or porting the product in the future. Lenders using these campaigns are risking placing the client in future financial detriment if they tie themselves to the wrong product because they didn’t get advice.”
David and Goliath
The sentiment among intermediaries seems to be, what can 10 or 20 brokers do about the behaviour of lenders which rank within the top six in the UK. Intermediaries know a boycott is not the way to treat their customers fairly, they also know it would fail to make a dent in the profits of the major players. Harle says TenetLime’s strategy, to help members protect themselves from early retention strategies which are getting even earlier, is one of business support.
“This may not be a problem for large firms which have the infrastructure to keep marketing their clients. They will have technology in place which will allow them to constantly be in contact with their client bank. Smaller businesses do not have this resource.”
Harle and her team are working with the smaller firms to devise contact strategies which alert their clients to the likelihood of receiving an early switching letter, educating them on the risks which this could pose and the benefits of obtaining full advice.
Kelly and Azopardi both believe there are enough lenders in the market place which offer similar rates and a slick service proposition which are happy to leave a deal in place for its entirety, to provide them suitable alternatives to the major brands should that be appropriate.
Azopardi said: “I certainly won’t be boycotting any lenders, but these lenders must not take it for granted that, because their service is so good, brokers will have no choice but to place with them, because it’s simply not true.”
What Santander said
Our priority is to provide customers with excellent products and services in a channel of choice that suits them. Our contact strategy when customers’ mortgage products mature is clear and we have always written to customers three to four months prior to maturity. In the letter we send, we outline their options for securing a new rate, including: transacting directly with us via telephony if they need advice, digitally or through their broker who can provide a whole of market view. The rate would always be the same if the customer wanted to transact with Santander directly, online or through a broker.
Following changes in the base rate and in order to maintain service levels during 2017, when we anticipate there will be a demand for support, we have contacted customers slightly earlier than the usual. This is the first time we have done this and involves a relatively small number of customers.
What Barclays said
Barclays offers a balanced retention strategy, recognising the role of intermediary advice with retention procuration fees, the loyalty of our mortgage customers with our Reward range of exclusive rates, and the convenience of an online rate switch service for customers that are confident they don’t require advice.
Ultimately it will be the customer’s decision how to transact but we continue to work in partnership with intermediaries having paid retention procuration fees since 2005 and openly including the statement ‘Visit your Independent Financial Adviser’ within our end of term customer letters alongside all other options, highlighting the opportunity for introduced clients to return to their mortgage broker for advice at product maturity.
