Things are very straightforward with John Whitehead. He calls things as he sees them and gets straight to the heart of the matter. It is perhaps unsurprising therefore that in a previous career, Norwich Union’s technical manager for mortgage development has been both a pathologist and a research scientist, and he has brought this scientific and methodical approach to the world of mortgages.
Discussing his time in the laboratory he says: “Everyone has days when they think a lot of rubbish lands on their desk – when you are in pathology it literally does. It is not as glamorous as it sounds, although there are some great parts to the job.” The great parts were, however, not enough to keep him as he explains: “When you are looking down a microscope and doing various tests to work out what a particular bacteria is and does, and why someone is ill then yes it is very exciting, rewarding and challenging, but that is 15% or 20% of the work, and the rest of the time is spent dealing with specimens and that is not a nice part of the job at all.”
The research company that Whitehead was working for in the late seventies went into liquidation, and it was time to find alternative employment. At the time Whitehead had no idea, or inclination, that it would also herald the beginning of a new career. Unable to find a scientific position immediately, he took a part-time job with HFC Bank. That was in 1979 and he has not had his lab coat on since. Back then the financial services world was a far cry from today’s market, and Whitehead is glad of the changes.
He says: “There were a lot of of cowboys in the industry when I started and there was no real professionalism in mortgage broking back in 1985. It was easy to make money selling endowments and the life companies were training the staff to sell them, as were the lenders. I think the problem was that the sales people were very commission hungry and it was very easy to sell endowments as it was not regulated in any way, and advisers could say what they wanted because there was no recording of what was said.”
However, things have got better as Whitehead acknowledges: “With the mortgage code and after the 1986 legislation covering sales and investments, record keeping has become much better, and things are more customer focused.” Nevertheless, Whitehead is not naive enough to think everything is now perfect, and still feels there are certain areas of the market that are priced unfairly. He explains: “There is a way to go and there is still a lot of commission grabbing going on – you only have to look at the price of buildings and contents through a lender to see this.”
Things have not only changed in terms of the service and focus of the mortgage broking industry, but also in how borrowers should go about getting the best out of brokers, according to Whitehead. The number of products currently available means it is not as straightforward for borrowers to find the most suitable product, and shopping around is imperative. As Whitehead says: “There used to be a time when a customer was well advised to shop around a number of lenders to find the best product, but I think these days they should be shopping around a few brokers to get the best product. One broker cannot possibly know the whole market. The better ones will use the sourcing systems as a tool and having identified a product from a lender they do not know, will then research it before they make the sale.”
However, not every broker provides a service that they like to publicise, as Whitehead is well aware. He comments: “A not so good broker will rely totally on the sourcing system although they are not 100% reliable. I have seen lots of dissatisfied customers because they have been told the arrangement fee is £195 when it turns out to be £250. This is not too difficult to deal with because the broker just makes up the difference, but it should not happen in the first place. This is one of the things that regulation is going to sort out by bringing greater certainty to the technology, but still brokers should not rely totally on the sourcing systems, as it is only a tool. It is a very useful tool, but it cannot do the whole job.”
As technical manger for Norwich Union Whitehead is close to the regulatory changes that are coming to the market in October. He feels the Financial Services Authority (FSA) has over egged its proposals, but realises that when a wave the size of the FSA is heading ashore, it is best to roll with it rather than trying to dig in. He says: “Regulation is coming and it is definitely overkill as far as we are concerned – a fire engine to put out a candle. If you look at the number of complaints that are made about mortgages and the potential customer detriment it is definitely overkill, but there is nothing that we can do about that.”
But, rather than complain, working with the regulator has paid dividends. Whitehead adds: “A lot has been achieved by the consultation process and although people complain about the length and complexity of the consultation papers, when you go to the FSA with good arguments and explanations, they do listen and often change things.”
One of the major concerns about regulation has been whether brokers will become directly authorised or act as appointed representatives of a principal network. Whitehead believes there is a lot of sand shifting still to happen, and that many may find themselves disappointed and perhaps desperate as Mortgage Day draws closer.
He explains: “Scale is going to be important and I think this is where a lot of the networks are going to fail. A lot of small networks do not have much experience in mortgages or of running networks – they do not have the right scale to make it cost effective and if they fail to attract the right amount of members, their cost model is not going to work and they are going to fold.
“This is going to cause all sorts of repercussions. If you have a broker that has not applied for direct authorisation and their network does not get authorisation, or fails to get critical mass or is unable to support the broker in terms of compliance or technology, then the broker is going to be without a principal. I think some of the larger networks will begin to put rescue packages in place so they can fast track a new firm into the system. Most firms are talking about it taking about a month to process an appointed representative application. If you are a broker and your principal is shutting down you may not have a month and you will need a fast track system.”
However, the problems do not stop here and Whitehead continues: “There is also the question of whether networks will want to take on brokers that have come from a failed principal. What is going to happen to the complaints that are made from the time the appointed representative was part of another organisation? Networks will have to know what extra liability they are taking on. Reputation is also crucial and no one wants to damage it.”
In addition to his day job, Whitehead is also on the Association of Mortgage Intermediaries’ (AMI) board. He is proud of the work that it has done, but hopes it will make further inroads into the Scottish market. He says: “I think quite right that Scottish brokers are often wary of something they see as English-based that might not represent them as well. There are different legal systems that significantly affect the way that mortgages are sold in Scotland – we are very aware of that and now that we have the Scottish region set up, we hope more will join.”
Whitehead is proud of the work AMI has done and relates how he got involved: “My AMI involvement started a couple of years ago when a group of us got together and realised that the first proposed trade body, the National Association of Mortgage Brokers and Advisers, was not going anywhere and although we had lots of mortgage experience, we needed more trade association experience. So we started talking to AIFA and AMI was formed. We are now up to around 15,000 members which is around half of the industry.”
Looking ahead, Bankhall’s recent purchase of the Norwich Union Mortgage Club will see Whitehead change employers, but he is adamant, there is not a further career change up his sleeve despite regulation.
