The UK mortgage industry is already wedded to broker distribution, with estimates of the proportion of residential mortgage business flowing through brokers now consistently above 50 per cent. The UK residential mortgage market is highly commoditised but borrowers increasingly want to speak to a professional broker or advisor.
Broker distribution is becoming increasingly important in commercial mortgage finance. By offering the advantages of speed, service, negotiation and whole of market knowledge, brokers can add significant value to a client when arranging a commercial deal. Greater participation by commercial brokers is anticipated in future, as their expertise and marketing create greater client awareness.
Standards of practice
The overall standard of practice in the commercial broker sector is generally significantly professional. We get few complaints from customers about the selling process or about the expectations raised in them by brokers not being achieved. Business clients are much more used to negotiating deals than residential mortgage borrowers and will check the quality of the advice they receive with alternatives.
Nevertheless, there will always be room for improvement. Looking at the trends in the residential sector, perhaps commercial brokers should aim to become better at adopting and communicating best practice. The National Association of Commercial Finance Brokers (NACFB) is a well established trade body that has already set service standards and drawn up a code of practice – but should the industry be going further?
There has been the recent introduction of the Certificate in Commercial Mortgages by the ifs, but perhaps mandatory exams would achieve a higher level of recognition for the professionalism of commercial brokers. The NACFB’s Kitemark is nearing delivery – and while it is difficult to predict how it will be received, this badge of quality could be a significant development for our industry.
Regulatory questions
Regulation in the residential sector is here to stay, with commercial mortgage contracts currently mainly exempt – but will it change?
There are no obvious signs of the regulator planning to extend the scope to commercial business in the short term, but it would seem likely to happen at some point and poor industry practice could hasten the process. Instead, the commercial industry can help itself drive up standards of practice to protect lenders, brokers and consumers by adopting many of the principles of mortgage regulation, for example, transparency and disclosure of lending terms and conditions. Even though they are regarded as less vulnerable than residential borrowers, commercial clients still need to be treated fairly.
Lenders must also play their part. There is already evidence of improved disclosure and simplicity of presentation, but there are some features starting to appear that remind us of the early days in the residential non-conforming market. Payment variations, whether due to expiry of a discount or interest only period, or any other variation that may arise if conduct of the mortgage changes, must be made clear to clients. Similar transparency is necessary with any fees or charges. Adopting best practice and the principles of regulation are vital to our entire industry.
More brokers are looking to enter the commercial market, but this should be seen as an opportunity and not a threat. Each newcomer is likely to need the skill and knowledge of a specialist commercial firm. At the same time, the specialists need to raise the bar for their own standards. If they don’t, the newer entrants will.
