Will regulation mark the death of product innovation in the mortgage market? Bob Sturges looks at how lenders might react to their regulatory responsibilities and at the same time deliver consumer choice
So here we are in the brave, new world of mortgage regulation. The ‘Mortgage Day’ parties are over and project teams up and down the land can finally submit their overtime claims and catch up on some much needed sleep. But is that it? Hardly. There may have been no seismic shifts in the market so far but we still have to get on with the job of making regulation work for the customer without inhibiting growth and innovation – hallmarks of what has undoubtedly been one of the UK’s most vibrant economic sectors of the past decade.
A key contributor to this vibrancy has been the emergence of the specialist mortgage market – now an established and respected part of the overall sector. Lenders and intermediaries alike have consistently demonstrated an aptitude and appetite for pioneering new products and processes, many of which had no place in our mortgage vocabularies even a few years ago. But will this spirit of invention now be stifled, or even snuffed out, by the imposition of the new rules and regulations?
Why should it? We’re the same people we were before 31 October and there’s no sign that consumer demand for mortgages is seriously diminished – even after the recent round of interest rate hikes. It’s true that we’re currently obsessed with making sure our expensive systems can cope, and that our KFIs don’t fall foul of the new rules. It’s also true that many of us are taking stock of the changes before embarking on ambitious new projects. We’ve even seen a number of leading products withdrawn from the market to much harrumphing from some in the national media. But I find it hard to believe that this represents the future.
An industry hallmark
I said earlier that innovation – an oft-used but nevertheless accurate word – is one of the hallmarks of the mortgage sector. It may derive on the one hand from clever sales and marketing people who dream up wonderful new schemes or products destined to take the market by storm. On the other, it may simply come from listening to people who understand what the customer wants. I’d suggest the professional mortgage intermediary fits this description pretty well.
One of the great advantages of being an intermediary-focused lender like igroup or First National, is the insight it offers into the way the market is moving – in other words, its dynamic. By speaking with our introducers on a regular basis, we’re able to get access to a wealth of experience and opinion that a hundred individual customer focus groups would struggle to match. And through listening to this important community we’re encouraged to review our products to see how they fit with their expectation and demand. From this derives much of the innovation that has driven the market in the past and will continue to do so in the future.
Cost implications
All well and good, but any new product – or twist on an old one – has to satisfy the requirements of the new regulatory regime. Will this prove too costly or complicated for some? If so, will they fall back on the ‘vanilla’ products that are easier to define in a KFI? And what about the sourcing systems? Will they be able to solve the much-publicised problems around verification and accuracy of KFIs?
It would be foolish to deny there are difficulties and issues still to be overcome. But there are many talented and skilled people devoting their time to doing just this. Also, the vast majority of lenders, if not all, are up and running and able to offer most of their products to the market. Admittedly, to do so requires a level of investment in resource, infrastructure and IT sophistication not previously seen in our industry. This alone is likely to deter new entrants not prepared or unable to make the investment needed. It will also speed up the process of consolidation amongst smaller lenders and intermediaries.
On the other hand, it is unlikely to deter big organisations well adapted to operating in highly regulated markets both in the UK and abroad; and who continue to see the potential offered by the UK mortgage market. This pattern is already well established with the emergence of global businesses like GE and General Motors in the specialist sector. There’s no reason to suppose others won’t follow. If so, we can expect a new burst of innovation as the newcomers seek to differentiate themselves in a highly competitive and energetic marketplace.
The way ahead
It’s difficult to conceive now that any objective observer would suggest that the mortgage industry should not be subject to statutory regulation. Debate may continue about its scope and administrative detail but most of us recognise it’s the way forward. As such we will adapt in the same way that our colleagues in the investment and pensions world had to adapt some years ago. Certainly, change can be unsettling but it can also be invigorating. To suggest that regulation is necessarily the bedfellow of stagnation is itself a failure of the imagination.
Bob Sturges is head of PR for igroup and First National
