Although the mortgage market is undergoing its toughest period in years, I am worried that some lenders might make it more difficult for consumers and intermediaries to secure the best deals. With the current market conditions, it is disappointing we do not all pull together.
I hear repeated references to ‘commercial’ decisions. Indeed, this seems to be an excuse for many things – from lack of notice or retrospective product withdrawals to tightened criteria. However, it is the increase in direct-to-consumer rates that undercut the intermediary ranges which disappoints me most.
While some lenders have never dealt with intermediaries, which I respect as a ‘commercial’ decision, I simply do not understand why an intermediary lender would choose to launch a range of products undercutting – and undermining – its own intermediary product range. This is surely counter-intuitive? Why would a lender want to out-price its intermediary range given the current market and the value of intermediary advice?
Broker benefits
The most obvious reason to use an intermediary has to be cost: distribution through intermediaries is incredibly economical. Compared with branch-based lending, intermediaries cost less, tie up less capital and create an incredibly flexible resource. If a lender struggles with volume, it can marginally reprice to reduce its intermediary business; however, if it has a cumbersome branch network, it ends up with a series of expensive branches and staff sitting on their hands – a fixed and expensive overhead.
The internet might be cheap, but while there is a hard-core of internet users who are willing to apply online, this group remains small. Yes, many consumers will consider some element of research online before applying in person, but making that big jump to applying online still seems a step too far for many. Intermediaries offer a flexible cost effective route to many more consumers. Now some high street lenders have increased the distribution costs and combined it with a lower-margin product. This combination would seem to represent the worst outcome.
On top of the superficial cost issue, let us consider the other aspects. Risk is a particularly interesting issue. The Financial Ombudsman Service is concerned with affordability, whereas the FSA is concerned with the affordability checks of lenders. Property prices are dropping and the cost of borrowing is rising, so surely using an independent safeguard is crucial?
Intermediaries are bound to check affordability and to recommend suitable products. By using an intermediary, a lender can diversify its risk, but by taking on business directly, it bears the increased risk alone. As I have identified, lenders pay more to distribute lower margin products through its branches. Why would a lender then have an appetite for more risk and less premium?
And what about market access? More than half (58%) of regulated mortgage contracts and 70% of all mortgages are arranged through a broker. I would expect an intermediary’s market share to increase in times such as these, with consumers more in need of advice. Because consumers trust brokers – as the FSA’s recent findings into lifetime and sub-prime mortgages demonstrate – it is counter-intuitive to fight this.
I am worried the practice of introducing direct-to-consumer products at rates undercutting a lender’s own range of intermediary mortgages will prove divisive at the very time that mutual support is clearly needed.
It is disappointing the industry appears to be working against the best interests of the consumer. I urge people to consider carefully the implications of such actions. n
