‘Shame on regulators for not solving the mortgage prisoner situation’ – Star Letter 18/10/19
This week’s top comment came from John Azopardi, who reacted to the story: Mortgage prisoners talking directly with lenders to find solutions.
He said: “There must be a way of saying if customers have a satisfactory record of payment for so many months, maybe 12 or 18, then they can afford a mortgage irrespective of their income – particularly if they are paying a rip-off rate.
“This mortgage prisoner situation is a complete injustice. Shame on the lenders who are taking advantage of these circumstances – and shame on the regulators who have failed to come up with a sensible work-around.
More factors driving age up
Kirstie Caneparo also had something to say this week, as she responded to the article: Underwriting must become more flexible to deal with older borrowers – Cleary.
She said: “I agree there is a need for more later life lending, willingness and underwriting capability to look at what older customers can afford based on a realistic projection of how their earned income and retirement/savings income will interact over time.
“The additional driver you didn’t mention for more later life lending is people joining the housing ladder later in life and potentially with a smaller percentage deposit.”
She added: “These factors result in the average age of customers at maturity of mortgages increasing.”
Free right to extend
Lastly, Trevor Barnett replied to the article: Brokers must emphasise overpayments as longer terms become the new normal – analysis.
He said: “In my experience, it is the lenders forcing the longer terms for ‘affordability reasons’ because of having to take into account future interest rate rises.
“The client can often afford the higher payment now and should be paying it. With overpayments, it is only ever an option and in most cases they spend their money elsewhere.”
He continued: “Clients should be motivated to have the shorter term now and if – and when – interest rates do go up, there should be a right to extend the mortgage term then, for no admin fee.”
‘Your only defence against poor advice complaints is a clear suitability letter and file notes’ Star Letter 11/10/19
This week’s top comment came from Andy Wilson, in response to the article: Brokers still not using suitability letters ‘scares me’ – Jannels
He said: “All advisers need to have a robust file that could represent a solid ‘case for the defence’ when the claims chasers come a calling, and with PPI (payment protection insurance) claims having ended, you can expect mortgages to be the next targets.
“You may think the discussions you had with clients will be enough to protect you if you document some of the outcomes, but clients who later make complaints tend to have selective memories as to what they were told.
“Your only defence against accusations of poor advice is to have a clear suitability letter and file notes that summarise accurately what was said, which are all dated and timed.”
He added: “Take a look at any one of your client files and imagine a complaint has come in that says this:
- The adviser did not consider my future circumstances in the advice process
- The adviser ignored my overall financial position
- The adviser ignored the fact I couldn’t afford this mortgage
- The adviser did not ascertain my attitude to risk on interest rates, inflation, house prices and the possibility of early repayment
- The adviser knew I planned to retire before the mortgage term ended meaning I could not afford it after retirement
“Does your file have documented evidence to confirm all of these points were covered? If not, it only takes one of the challenges to succeed for you to be coughing up compensation.
“Don’t forget, in the world of complaints, the customer is always right, and things that might have been said weren’t said unless you also have it written down.”
Concluding, Wilson said: “I speak as a previous director of a firm that had over 400 complaints, mostly endowment-related, and the ones we lost were the ones with no clear documentation on file.
“In my own business, established for over eight years, we have not had a single complaint, but if a claims chaser complaint was to come in, I am confident the files would pass muster.”
‘I hope execution-only leads to lenders paying large amounts of compensation’ – Star Letter 04/10/2019
This week’s first top comment came from Derek, in response to the article: Execution-only drive may lead to spike in compensation claims – AMI.
He said: “I sincerely hope that the keenness of lenders to encourage clients towards execution-only does result in them having to pay out numerous and preferably large amounts of compensation to clients.
“I am currently trying to remortgage a client of mine with the lender I put them with two years ago. The lender is doing everything they can to poach the client.
“They are trying to make things easy for the client to do the process directly with them in order to confuse and suppress the arrangement through brokers. Many lenders are good, but this is not the first time we have come across this kind of problem with lenders.”
Builders maintaining profits
Dave Evans had something to say about the drop in new build starts in response to the article: New-build starts continue falling putting government under pressure
Evans said: “It really is simple. Builders and developers will not build the required numbers as that will lower overall values and therefore profits.
“The simple economics of supply and demand.
“The only answer, especially for many first-time buyers, is a programme of social housebuilding. Leave the developers to the mid and higher end, thereby maintaining profits.”
‘The FCA should regulate from a factual position’ – Star Letter 27/09/19
This week’s comment came from Paul Fielding, in response to the article: ‘Not much substance’ to FCA’s unaffordable second charge lending claims – FLA.
He said: “The absolutely frightening aspect here is the fact that the industry regulator, so keen to bring the hammer down on the adviser side of the fence, can itself make public totally unfounded statements of this nature.
“Then, when challenged to back it up, they remove the offending wording from the Financial Conduct Authority (FCA) website and fail to come up with a substantiated position whatsoever.
“I do very little second charge business, even though I always always consider it as an option where appropriate, so I have no axe to grind at all.
“I simply ask the question: how can an industry regulator behave in this way? Only to then presumably shrug it all off – once again – in a ‘you can’t touch us’ kind of manner? By all means regulate, but regulate from a factual position.
“Trust… what trust?”
‘Making things simple does not make them better, just easier to scam’ – Star Letter 13/09/19
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.”
‘This shows how little is understood about stamp duty by property professionals’ – Star Letter 30/08/19
This week’s contribution comes from Cornerstone Tax, for its response to the article: FOS fine highlights brokers at risk from advice ‘drift’ ‒ analysis.
It said: “The decision by the Ombudsman may seem harsh, but the whole case reflects how little is understood by most professionals in the property market about Stamp Duty Land Tax (SDLT) as a whole.
“Consider that the solicitor consulted by the broker was incorrect on the matter, the further fact that the clients apparently didn’t realise that this was a tax they would require actual advice on and the fact that their own solicitor either didn’t advise them or didn’t draw sufficient attention to the fact that of the actual amount they had determined was due.
“The only way to ensure that clients are paying the correct amount is for them to consult an actual tax adviser, who will be able to advise of any exemptions, reliefs or additional charges which may be due, and upon whose advice the client can rely on this matter.
“Until awareness is properly raised among the public about the nature of SDLT, the fact that it is a tax, accessible like any other and for which they hold ultimate personal liability, then mistakes of this nature will keep being made.”
‘Comparison sites are a ringing endorsement for local mortgage brokers’ – Star Letter 23/08/2019
This week, our readers had a little something to say with regards to the Experian data which showed that 33 per cent of customers did not meet the full lending criteria when their eligibility was tested through price comparison sites.
RhysieDS said Experian had “missed the point entirely” by highlighting the fact that this only applied to the mortgages that were available through the one channel.
They said: “If that isn’t a ringing endorsement for a client’s first port of call to be their local mortgage broker, I don’t know what is.”
Stuart Powell echoed this by saying the wrong conclusion had been drawn from the data, reaching his own verdict and saying his advice to a client would be to “go to a broker to greatly increase your chances of receiving good advice and obtaining the most suitable mortgage deal for your circumstances”.
Questioning Experian’s Lisa Fretwell’s take on the data, he added: “I wonder why this wasn’t her conclusion?”
Good advice: ‘Helping clients doesn’t always mean making a sale’ – Star Letter 05/08/2019
Advice was the focus this week as readers had their say on the consequences of good or bad guidance.
The first comment came from Paul Fielding, who praised an adviser who helped a pensioner come into £132,800 by recommending an equity release.
He said: “Now that’s the kind of superb work by the adviser that the Financial Conduct Authority (FCA) should applaud long and loudly in the public domain, as well as realising that all decent and hard-working advisers carry out this unseen pastoral care work on behalf of clients, every day.
“That said, well done Graeme for your diligence and for helping to enhance the standing of both yourself and your fellow like-minded advisers everywhere.”
Andy Wilson also had good things to say: “A lovely story for a change. Credit to the adviser for having the knowledge to realise something was amiss.
“On a similar vein, I once saw a lady about an equity release plan who was living on a state pension and a widows war pension. She had been denied a means tested pension credit payment because her income was too high.
“However, I explained war pensions are not taken into consideration for means testing. I drove her to the local weekly benefits drop-in centre, argued the point with the adviser, she made a claim, and two weeks later had confirmation she was entitled to £204 a month in additional income.
“This helped to mitigate the amount of equity release she needed to pull out of her property to meet her living costs.
“A good adviser will understand and have a good grasp of the benefits system and can see when something is not quite right. Helping clients doesn’t always mean making a sale.”
Going beyond advice remit
This week also showed us what can happen when advisers get things wrong, as Paul Smulovitch reacted to the analysis of Primis being fined £30k when a broker gave a client incorrect advice regarding stamp duty.
He said: “I think the issue here is some advisers are so worried about losing a client by not being ‘helpful’ that they go beyond their remit.
“If you think how a solicitor works, they put all the responsibility on the client. They specify that they should have a full structural survey and seek advice on everything as they don’t want any come back.
“Lenders do the same, passing all responsibility to the valuer and the solicitor. Brokers need to understand the importance of the right advice and professionalism and know that if they are doing the right thing then the client will not seek advice on mortgages elsewhere.”
Is the solicitor to blame?
In response to the original reporting of Primis being fined £30k, John S said: “The adviser has been stupid there is no doubting that but surely the solicitors will have discussed Stamp Duty Land Tax (SDLT) with the clients before allowing the clients to enter a binding contract?
“If the solicitor did have the discussion, then the clients are not telling the truth to the Financial Ombudsman Service (FOS) and if the solicitor didn’t have the conversation with the clients then surely the solicitor is to blame?
“This is an example of FOS taking the easy option and as advisers we all pay for decisions like this. I am amazed the adviser community does not have more to say about this as one day it could be you or I on the end of a crazy decision like this.”
Huge opportunity for brokers
Lastly, Stuart Philips gave his opinion on L&G Mortgage Club’s suggestion that fewer customers should be placed with high street lenders.
He said: “There’s such a huge opportunity here for brokers in the future. Lending figures are not growing overall, and lenders are fighting for market share from each other, especially the big eight.
“At the same time there is a large segment of under-served clients such as the self employed, those with light adverse, older borrowers and such that smaller lenders have an appetite to help.
“The prime cases, remortgages and product transfers are probably going to be increasingly served through direct channels, by robo-advisers or on an execution-only basis which is a threat to the traditional broker.
“Brokers can remain relevant though, by increasing the number of positive outcomes for these unde-rserved clients. It needs to become much easier for us to place these cases and while tools like Knowledge Bank, Criteria Hub, BrokerSense, Mortgage Broker Tools etc are making this easier, but there’s still a huge gap here that could be filled.
“How do we better connect lenders who want to serve a niche with the customers who want a mortgage but feel they wouldn’t qualify with high street lenders?”
‘I used 26 lenders last year but should try to use many more’ – Star Letter 02/08/2019
This week’s top comment goes to Doug for his response to the article: ‘Fewer customers should be placed with high street lenders to start with’ – L&G Mortgage Club.
He said: “I know some brokers who only seem to use five to six lenders from a panel of 60+, but they have their reasons [such as] working for a new build company or [being] tied to an estate agent where speed and knowledge of the lenders’ criteria is king.
“My KPIs (key performance indicators) show 26 different lenders used last year, which is better than most, but I should try and use many more.
“Smaller lenders are great for interest-only cases, later life lending, self-build or refurb properties, properties with two kitchens, unusual income, joint application sole borrower – the list goes on and on.”
Affordability: ‘A mortgage is as good as its strongest link’ – Star Letter 26/07/2019
This week’s top comment goes to Lanky Des for his response to the article: It’s right to flex criteria for mortgage prisoners, but what about the rest? – Bamford.
He said: “The current situation, where nobody will ignore their affordability calculation for one pound is absolutely ludicrous.
“Affordability calculations have their place. I had mine many years before most lenders and very robust it has proved to be. However, they are not the be all and end all.
“I have recently had a case where one of the parties was employed and the other was a student who will graduate next year. She has a good work record, and her maintenance grant plus savings (which will still be left after the purchase) is enough to get her through next year without her being regarded as a dependent. She is no bigger risk than someone who could lose a job.
“I’ve done several such borrowings with students involved in the past and none of them have had any problem. I always look at every case as though I was the first line underwriter for the lender. If I don’t like the case it is not going to get any further.
“However, while he passes affordability on his own, they miss by miles with her included with just about every lender other than Kent Reliance. There is absolutely no sense in this at all.
“The mortgage is as good as its strongest link, not its weakest. You cannot weaken a mortgage by adding the liability of someone who is going to live in the house. It isn’t like adding a party to a bank account in the days when you gave them a cheque card and chequebook; then they could weaken the bank account.
“Now, if they are that sort of person, they would still weaken the lending by being in the household; it is just that the lender would not have their liability on it. It’s worse for everyone.
“Unfortunately, the regulator does not understand the industry and this would be over its head. It apparently does not object however to adding parents to a mortgage for the income.
“That can increase strain on real affordability as the parents’ age may dictate a shorter term than is really affordable. I will only do that where I am confident the parents will never be called upon and I am confident the couple will be fine.
“In that sense, my lendings are actually stronger than the regulator says they need to be.
“The young person or people should not be put in the position where the lender will lend merely because they can fall back on the parents.”