For the first time, applicants who have not conducted their non-conforming mortgages satisfactorily may be better off staying where they are – even if they are on the reversionary rate.
It has always been a question that has bugged me. Why should we all be ‘Treating Customers Fairly’ (TCF) rather than well? The fact is non-conforming mortgage reversionary rates could easily be 2 per cent over LIBOR, whereas we have seen new business rates in the mid-eights from many providers in recent weeks.
Not pleasant news for anyone to deliver to their clients – a bit like saying you have been impaled on the perimeter fence rather than fallen off the cliff. As I say, treating them fairly under the circumstances, but not well.
Recent BDRC statistics published by the Armadillo Group show the spread of fear among 1,700 canvassed borrowers, with 40 per cent finding the repayment of their mortgage to be a ‘financial burden’, including 12 per cent who struggle with payments – up 3 per cent on 2006, many of which are actually in the benefit period.
The exponents that had to read and apply the TFC Bulletin on Product Design this Summer – rather than enjoying the last pre-ordered instalment of Harry Potter – will draw their own conclusions from this principles-based document – would the Financial Services Authority (FSA) have it any other way?
What I gleaned was the overwhelming slant on stress testing the products and the management information that must be embedded and demonstrated no later than March 2008.
Stress testing is an interesting one, as Key Facts Illustrations prescribed by the regulator itself only show what happens if the product increases by 1 per cent.
Lenders can, of course, only speak for themselves, but this is futile when applied to the fact that remortgaging someone who took out a low, short-term fix a couple of years ago now could see the interest rate considerably higher than that.
Is the warning suitable? The customer is meant to be at the heart of TCF; not fed information on one isolated lender, but the whole market.
The fact is, very few predicted the credit crunch, least of all the regulator; otherwise it would have been much more prescriptive on market entry for the securitising lenders.
I’m personally pleased these lenders were allowed to trade, think yourself of how many lives you have positively transformed saving all those clients who would still be living with mum!
The fact is, when it comes to product design by nature you have to be competitive. Sourcing systems may get stick but how brokers could function effectively without them? So why is the regulator turning to the paperwork when, in reality, only a doomsday scenario makes a real difference to TCF?
Lenders have the ability more so than ever to provide statistics to justify Product Design TCF: reduction in affordability, downscaling of new build properties reduction in loan-to-value (LTV) on self-cert but what has perpetuated this? The FSA or would-be investors?
In fact, many blame the rating agencies’ due diligence – a third party that stress tests for a living. Business will self-correct bad practice as no one wants to purchase a poor-performing asset.
Please can we let lenders lend. The last thing they need right now is further bureaucracy. Put layers of extra directives on hold and extend the March 2008 deadline, and free them to concentrate on planning their recovery strategies. Hopefully this will then empower us to write meaningful remortgage business before we have a real economic crisis on our hands.
Any extra breathing space we can give them may mean one more lender will survive, as let’s face it – it is competition that drives customer choice and the likelihood of them being treated fairly.
Mainstream
Bank of Scotland has removed the requirement for a signed direct debit on its online system.
First Active has simplified the process for brokers to rebroke existing customers to one quick phone call. A proc fee is payable.
Northern Rock has removed the additional £150 it was paying for online customers. It has also amended its policy and remuneration on applicants that are porting existing loans.
Self-cert
Amber Homeloans has withdrawn its popular unlimited adverse self-certs.
CHL Mortgages has altered its maximum loan size to £450,000 at 90 per cent LTV.
UCB Homeloans has re-configured its whole range.
Buy-to-let
Alliance & Leicester has extended its lending policy to encompass houses in multiple occupation. A single assured shorthold tenancy agreement is required.
CHL has tightened its new build lending policy to permit a single specified valuer.
First National has withdrawn from the new build market.
Adverse
db mortgages has split its range into purchase and remortgage in terms of price like the traditional non-conforming lenders all did historically. This is pure in terms of associated risks, but is perhaps going too far. For instance, a 45-year-old is probably a better risk than say an 18-year-old, but surely does not warrant a different product. We hope this market reversal does not take hold as it literally doubles the product number.
Mortgages plc has refined its list of who it considers to be an existing non-conforming lender.
The Mortgage Works has reduced the LTV on medium and heavy adverse to 65 per cent. It’s also pushed its historical repossession criteria to a three-year minimum on near-prime, and introduced a no arrears in the last three months clause on selected deals.
