The first contribution came from Arron190, in response to the article: Mortgage brokers using only a handful of lenders ‘on FCA’s radar’ – AMI.
He said firms should not pretend to offer a whole of market propositions or act independently for their customers’ best interests if there were only going to use three lenders.
He added: “I have heard of firms who give most of their business to one lender and use statements on the suitability letters that simply say, ‘lender chosen due to speed of service’. Even with a purchase, very few cases ever need an offer in one week.
“There are others than do not engage with business development managers (BDMs) and do very little with their continued professional development (CPD), so it’s easy to see why they are lacking diversity.
“One might compare them to the middle-laners on motorways, who lack the confidence to change lanes, as they have failed to continue to develop their skills since passing and are ignorant of the traffic jams they cause.”
Arron190 concluded: “Like medicine, mortgage brokering is a practice as it requires constant engagement to do it well and it is perhaps impossible to perfect.
“Firms should be taking a serious look at any of their brokers with more than 20 per cent [of cases] going to one lender and ensuring price is the primary consideration and that there is good justification when the cheapest is not chosen.”
Simplicity makes it easier to scam
Doug reacted to the article: Lloyds asks regulators if they understand execution-only makes lending riskier.
Doug said: “Execution-only was used by IFA’s to sell self invested personal pensions (SIPPs) not that long ago and then push funds into unregulated offshore developments and the likes of green oil.
“That’s come back to bite them on the bum and most have closed because of payment protection insurance (PPI) type claims costing hundreds of thousands if not millions against the IFA or SIPP companies. Regulators never seem to learn from past errors.
“Making things simple does not make them better, just easier to scam. The FCA always seems behind the curve and finds out about issues years after the event.
“Execution-only is an accident waiting to happen for target driven salespeople willing to push square pegs into round holes for commission or whatever they are calling it nowadays.”
Understandably, product transfer activity remains strong – indeed, if you add up the last four quarters of mortgage debt being financed internally by lenders it equates to over £165bn of additional lending, which is not typically factored into the overall gross mortgage lending figures each year.
By anyone’s standards, that’s a significant amount of new business and a very positive aspect of this, is that advisers are taking an increased share of it.
The latest statistics for quarter two this year reveal that, of the £41.4bn of product transfer business, which was up 16.3 per cent year-on-year, £24.4bn was advised while £17bn was on an execution-only basis.
That’s close to 60 per cent of all product transfer business going through advisers, slightly up on the previous quarter, and is indicative of the increased focus on this sector by the intermediary community.
Step change towards advice
Looking back historically, you would anticipate lenders themselves would take the lion’s share of product transfers via execution-only channels.
But there has clearly been a step change over the last few years, particularly as the size of this part of the market has become known and advisers have a great opportunity to pursue.
As a mortgage network, we put a great deal of focus and resources into helping our appointed representative (AR) firms not just hone their alertness to market opportunities, such as product transfer lending, but actually increase business levels, and there is a lot of work done around maintaining ongoing and regular client contact.
That should mean the adviser is at the forefront of the client’s mind when they are coming up to renewal, and when inevitably the lender contacts them with a range of product transfer options and retention tactics.
Further inroads for advisers
Checking what’s on offer from the existing lender against the current, wider market opportunities is vital.
What we do not want is the client simply ticking a box, missing out on advice, and potentially choosing a product which is not suitable for them, and which means they miss out on the reassurance and protection which comes with impartial advice.
In that sense, keeping in close contact is vital, and you only have to look at the execution-only product transfer figures to see there is still a significant amount of business to go at.
Again, in the last year, it amounts to £71.7bn of lending, and while over that one-year period the advised share is going up, there are further inroads that should be made, as it’s to the customer’s advantage.
After all, approximately 70-75 per cent of all mortgage business comes through the intermediary channel, so advised product transfers could arguably look the same. It’s entirely good news for consumer outcomes and for mortgage advisers.
While headlines have centred on precipitous house price drops of up to 20 per cent in London over the past two years, they haven’t been telling the whole story. Brokers are upping their game.
“We’ve got two different markets. There’s the prime market which has definitely slowed because of stamp duty mainly. Brexit has also affected foreign nationals coming in — although that’s starting to turn round the other way now, with Sterling so weak,” said one attendee.
“But the reasons why people buy houses are still there. That underlying demand is still there, and that’s been pent-up; loads of people have put their properties and lives on hold because of Brexit.”
“Brexit is affecting absolutely everything, especially in London. That was proved when they moved it to October, all the MPs went on holiday and the phones went ballistic. The moment they came back and started talking about European elections, everything died again.”
Return of first-timers
Brokers noted that first-time buyers were starting to return to the market this year, especially on the outer edges of the capital.
But the cost of renting is significantly impacting on the demographic of buyers and their future moving plans.
“People have rented for four or five years, so when they buy a property, it’s not in their psyche to say we’ll move in two years,” continued another adviser.
It was noted that first-time buyers are no longer in their early twenties and so this has affected their homeowning journey.
“The demographics have slipped a generation so these people are generally in their 30s. So it doesn’t necessarily pay to go to that one-bedroom flat. You go for the family home straight away.”
Protecting the inheritance
This took the discussion onto the growth in family support for first-time buyers and in particular using equity release to help fund deposits, which as a result has “gone bang” in London.
“Clients in their 70s that are mortgage free and are living in houses that they couldn’t ever imagine being worth £1m, are saying ‘I’ll take £100,000 or £200,000 out to give to the kids now, because I’ve got to get rid of them somehow’,” said one broker.
Another added that with the ability to make overpayments in many cases the children benefitting were making the interest payments.
“The kids don’t want to ruin their inheritance so they make the interest payments and then the debt will remain pretty much stable,” they added.
And it seems the boom in equity release is also feeding further business relationships for brokers, as the one transaction can then lead to three or four others from relatives or friends.
Execution-only goes wrong
The debate turned to the regulator’s proposals on increasing availability of execution-only for mortgage borrowers.
This has hit a nerve with much of the adviser community.
While some advice firms want to explore the potential for offering their own execution-only service, one said they “would not entertain it,” with the likely impact of professional indemnity insurance a key concern.
Another broker noted that the whole issue had come about as a result of lobbying by certain lenders and fintech companies. The regulator was “absolutely clueless” about how the industry works, they said.
Brokers’ big fear was that ordinary customers will lose out as a result.
“They have no idea what they’re doing. They don’t know who they’re protecting, they don’t even know what the problem is and they’re going to cause so many issues,” the broker said.
Another attendee agreed and recounted the experience of a client who had decided to complete their remortgage themselves instead of taking advice.
The client believed they had taken a tracker with no early repayment penalties, however they discovered this was not the case when after three months their circumstances changed significantly.
Instead, the client had actually agreed to a five-year fix with extensive repayment charges through an unadvised transaction direct with the lender.
“This was an educated person on their third mortgage who thought they were taking one thing and has ended up with another,” the broker added.
‘Never see those clients again’
This led on to the development of product transfers within the broker market and warnings that while it may seem like a viable strategy now, this was unlikely to continue.
“If you add into that technology, execution-only and that the Financial Conduct Authority (FCA) has basically given them permission to dual price, then look at the business in two-to-five years’ time,” another attendee continued.
“There are a lot of brokers out there who are now quite rightly recommending five-year fixes on product transfer, but because they think it’s easy. They’re not going to get those clients back.
“They’re never going to see those clients again.”
One broker noted that firms needed to begin their retention strategy the moment a client completes, including sending useful information and other regular contact throughout the mortgage term.
“We know if we have an offering that is compelling enough, we’re not going to lose that client,” they said.
Brokers must do better
Finally, the discussion moved on to lender service levels and how quickly underwriting and cases were completing.
The focus was on brokers doing a better job of packaging cases correctly.
“Lenders are putting more onus on us. They’re coming in and showing us adviser by adviser who is fully packaging within 24 hours,” the broker said.
“The issue we’re hearing from lenders is a lot of brokers are still keying it in even though they only have half the documentation, and then when the offer comes out a month later, they’re blaming the lender.
“What I’m seeing is a lot more lenders saying, ‘here’s our service level agreement, if you give us X you get your offer in Y’.”
This was echoed by another adviser who said they had analysed their consultants’ performance with similar results.
“We do application to offer times to lender and then we do it per consultant. It’s really interesting to see, the same consultants who are good, the same consultants who are bad, it’s all down to packaging.”
Attendees
Ann Brown, Charles Cameron
Greg Cunnington, Alexander Hall Associates
Jane King, Ash Ridge
Phil Leivesley, Monica Bradley Associates
Gareth Lowman, SPF Private Clients
Andrew Montlake, Coreco
Kelvin Redwood, Redwood Financial Consultants
Martin Stewart, London Money Financial Services
John Stonestreet, London Money Financial Services
Stacy Wells, FundU
Platform
Sarah Line
Chris Smith
Mortgage Solutions
Katy Bryant
Bharat Sagar
Owain Thomas
Execution-only costs less to deliver, it removes the knotty problem of compliance and lowers the potential cost of complaints.
Settling for too little for too long
My view remains that a significant number of lenders and brokers are likely to take the execution-only route if the Financial Conduct Authority (FCA) rules that they can. It is highly likely that, as the industry warned the regulator back in 2012, it will be gamed and consumers are the ones who will lose out as a result.
I was therefore interested, though not surprised, to see UK Finance claim this week that the Mortgages Market Study recommendations would not drive execution-only but would result in borrowers getting ‘the right advice for them’.
I completely disagree.
Borrowers in the UK mortgage market have been settling for far too little for far too long, driven by the vested interests of those few players who dominate the market. It is time for a change and a proper appreciation of what other players in the market offer.
Brokers becoming lenders
I was encouraged to see Habito announce it was launching a range of buy-to-let mortgages. This follows Molo’s launch six month’s ago into the buy-to-let sector, offering landlords fully digital mortgages. It’s fast and painless. Everything happens online from application to credit and affordability checks, security checks, valuations, product recommendations, approvals – the works.
The attraction is obvious: with a very low-key launch and next to no advertising, Molo has already attracted more than £250m of applications through its system.
This is clearly just the start. The next logical step is a launch into residential mortgages, which Molo plans for next year, on a fully advised basis; not just jumping on the execution-only bandwagon but providing customers with the help, support and protection they get today and should continue to expect in future.
Varying advice standards
I have witnessed first-hand the varying standards of regulated advice available in the market. With a digital approach, the good standards are hardwired into the process. It doesn’t have an off day, it does not cut corners, it isn’t influenced by third parties and outside influences; it basically provides quality advice and a good customer outcome consistently every time.
This is something the regulator should be actively encouraging.
As I’ve said before, the regulator would be far better focusing on and supporting the industry to develop technology that will deliver a fully regulated, compliant, speedy and efficient online advice process for all customers.
We’re at a pivotal moment in the mortgage market today and we have a choice to make.
Do we keep regulation that ensures a good outcome for all customers and invest in making digital advice technology more widely available to provide a fast and efficient service.
Or do we change the rules and allow firms to spend their money on systems that provide a poorer outcome for consumers that will take years to manifest?
I know which side I am on.
In its quarterly bulletin, the trade body noted this was not necessary and that it was possible to create simple, customer-friendly online processes without removing advice, which were already being used regularly.
“It is being argued that the move towards execution-only for simpler refinancing deals would facilitate much better use of technology to smooth the customer experience of the process,” AMI said in its quarterly bulletin.
“The so-called ‘difficulty’ of providing fully regulated mortgage advice online without the need for human intervention has become a convenient justification for the ‘need’ for execution-only. This is a complete misnomer.”
It noted that around £7bn of mortgage applications have been originated online as part of a fully advised end-to-end process with customers having the option to jump out to speak to an adviser if they need help.
“This is online advice with the option of a human touch but which can be fully completed without.”
Key to sustainable mortgage broking
It further warned that the regulator should not confuse the issues and that it was the way firms were using technology that was the problem.
“The market and the regulator must be extremely careful not to misdiagnose the challenges facing this market and rush to change policy that will result in thousands of mortgage borrowers receiving a poorer outcome than they should and would under existing regulation,” AMI continued.
“Technology is not the problem; how some firms in the market are deploying it is.
“This comes back to supervision and taking the time to really understand the services available in the market, across the whole of the market; it is time to listen more broadly than just to the self-professed disruptors.”
AMI concluded that this sector of remortgaging and product transfers could be the defining one for advisers and their businesses.
“Increasingly, retention is the key to sustainable business in mortgage broking. It will only become more so if the regulator chooses to reintroduce execution-only transactions,” AMI added.
Regulator cannot be left alone
Meanwhile, AMI warned that the Financial Conduct Authority (FCA) should not be left alone to decide how inter-generational financing should operate, but that it required political input too.
The trade body also suggested it expects interest rates to rise a little quicker than the Bank of England is currently predicting, but not until next year.
And it highlighted that builders were not yet considering changing their plans despite the significant overhaul of Help to Buy which could severely limit buyers’ options using the scheme.
Considering inter-generational finance, AMI said it was timely that the FCA had announced its intention to lead a consultation with industry on the matter.
However, it was “concerned at the lack of overarching direction on this given to the regulator by government”.
“Brexit and a leadership contest may be priorities in the short-term, but politicians cannot afford to pass the buck on social policy formation that will affect the people of Britain for generations to come,” it continued.
“The regulator cannot be left to scope this vital policy area without direct intervention and guidance from elected politicians.”
