Imagine waking up in the middle of the night to the sound of your smoke alarm...
After the initial panic, you quickly get yourself and your family safely out of the house, thanking your lucky stars you only changed the batteries in the alarm a month ago, and run over to your next-door neighbour to use the phone.
After banging repeatedly on the door for five minutes, and seeing the fire rip through into another segment of your house, a tall man with a shock of white hair and black eyebrows eventually answers. You say: “Alistair, help. My house is on fire.”
After a pause and some serious furrowed-brow thinking – and the fire now licking at the roof – he says: “I’d better go and call 999 then,” and disappears into his house.
After another five minutes – and the flames are bursting out of all the bedroom windows – he comes back and says: “I think the best course of action is to form a working party to consider all the emergency services, what benefits they could bring to the current situation, what resources they have and whether they could work in collaboration with each other to bring the most suitable resolution.
"Also, while I think about it, we could send a sub-committee to look at American and EU member state emergency services, to see how they do it, reporting back some time later in the year. By the way, as you are also a stakeholder in the present dilemma, would you like join the working party?”
Piling on the pressure
Okay, enough is enough. But the industry now needs to get a grip and put serious pressure on the government, Bank of England and Financial Services Authority to be more expeditious in a rescue package for the mortgage industry than a paper at the next Pre-Budget Report.
The Association of Mortgage Intermediaries has written to the Treasury to be included in the discussion from the perspective of intermediaries.
We are also formulating a policy response to the re-occurring distraction of long-term fixed rates.
The Treasury keeps coming back to us asking the same question: ‘Are intermediaries resistant to advising on these products because they miss out on repeat procuration fees?’ This question is wrong and misguided on so many counts.
First, if this assertion was true then there would not have been a single flexible, current account offset mortgage ever recommended.
Secondly, intermediaries do advise on long-term fixed rates when the client’s desire or needs are overwhelmingly for their mortgage repayments to remain constant over an extended period.
Both GMAC-RFC and Nationwide Building Society’s small tranches of 25-year fixed rates attracted some interest. Long-term fixed rates are a viable but niche product in the sophisticated market.
Fuelling desire
So what is driving the government’s desire to bring these stagnant products to the mass market? Well it believes they are easy to regulate and monitor and if everyone had them, then the perception is that monetary policy would also be much simpler to moderate. However, time cannot be turned back and markets can’t ‘unlearn what they already know’.
Often the peddlers of long-term fixed rates cite their success in other markets such as the United States, Germany and France. This is because several years ago those markets solely operated in that way and the additional cost – either in massive upfront fees or break penalties – were the norm.
Currently in these markets there is a rapid move away from the longer term to the shorter term as there are few costs in supporting the shorter term interest rate hedging and the benefits that greater flexibility brings.
Financially savvy
The reason that consumers are not clamouring for longer term fixes rates is that they are savvier than the Government is giving them credit for.
There is simply no consumer demand for them as consumers wish to stay a little more fleet of foot with their borrowing needs than tying them to upwards of ten years.
In proof of this I have asked the FSA to provide me with a comparison of the numbers of enquiries for fixed rate terms to their impartial consumer site, “Moneymadeclear”.
Decisive action needs to be taken at all levels and here at AMI we are doing all we can to put a bit of urgency into the emergency call.
