Dear Sir,
Given the recent protests regarding overdraft fees and bank charges outside the Office of Fair Trading (OFT) it reminded me that not so long ago the OFT also cited mortgages in the same breath as store card and overdraft charges – in particular that charges should only reflect the company’s true costs. Now, in terms of bank charges we have seen a number of people taking banks to small claims courts. More alarming is the fact that a BBC news special positively encouraged the act. Giving step-by-step guidelines to spur the public into action with not only bank charges but other fees or charges that they feel are unfair and unrealistic.
My point is, how long until they come knocking at the door of the mortgage industry? I fear it will be arrangement fees that will take the brunt of public dissent. They are an easy target. The question raised will be: do arrangement fees represent the actual cost of arranging a mortgage? If a customer asked for an itemised breakdown of an arrangement fee how many of us could accurately and convincingly do so, especially when one company can charge £1,499 and another nothing at all. The cost of administration cannot possibly vary this much, but, as we all know, the arrangement fee is just part of a complex package to offset the rate of any given mortgage product.
Are the alarm bells ringing yet? They should be, as this wanders dangerously into ‘Treating Customers Fairly’ waters? The industry needs to decide whether to save its hard-earned reputation and standardise arrangement fees, or wait until some plucky customer sees himself as the people’s champion and forces the industry’s hand. Either course of action would result in higher rates for customers, but I’d bet the idealists out there would take this in exchange for a ‘fairer’ system.
Martin Waine.
Mortgage marketing executive
Thinc Destini Group
Getting its act together
Dear Sir,
Many people look at January through fresh eyes with the view to making a clean break from the past and making improvements for the future. Personally I hope the FSA keeps right on track with the progress it was making as last year drew to a close.
The Canary Wharf watchdog is at last beginning to show the payment protection insurance (PPI) industry that its bite is every bit as bad as its bark. The latest firm to be fined was Redcats (Brands) Limited, which was hit for a total of £270,000 after failing to treat customers fairly when selling PPI products.
There are many reasons why everyone in the market should warmly welcome such action. In the first instance, it is a clear statement of intent to protect consumers and ensure they are not getting a raw deal when it comes to buying insurance.
However, it is also hugely important for the industry as a whole that those outside of the market, selling insurance as secondary or tertiary products, do not devalue the industry and damage the reputation of the market where we operate as our primary concern.
It is unpalatable to think of people operating in other retail ventures, hijacking the insurance market to swell their own immediate profits and through their own poor practice damage PPI’s reputation further.
Hopefully the FSA will also show as much enthusiasm in looking at dealing with some of the major credit and PPI providers within the market during 2007, who are also perpetrating poor practices and procedures but to date have not been held to account in any meaningful way.
In the coming weeks the OFT is set to formally announce the referral of the PPI market to the Competition Commission and in time this should deliver further improvements to the structure of the market and the availability of insurance for consumers.
Those providing insurance should be fully aware of the responsibilities they bear and the FSA is so far doing a good job in bringing these responsibilities to the forefront of people’s commercial considerations.
Given that there are a number of other PPI cases pending in the pipeline, it seems certain that the financial services regulator will continue forward as before and as it gathers and builds on the momentum created in 2006, I firmly believe 2007 will begin to see PPI improve on its performance of the recent past and see practitioners both within and without the insurance market get their act together. Long may it continue.
Simon Burgess
Managing director
British Insurance Ltd
Transparency is key
Dear Sir,
There has been some discussion of late on the subject of higher lending charges (HLC). One such article was ‘FSA backtracks on HLC probe’ (Mortgage Introducer, 18 November 2006), where there was a suggestion by Nick Gardner of Chase de Vere Mortgage Management that these charges are unfair and solely designed to extract profits for lenders.
However, with regards to HLCs, there is a truth that everybody is missing. For every percentage increase in the loan-to-value (LTV), there is a corresponding increase in the level of arrears and losses which lenders incur on portfolios. HLCs are therefore an entirely proportionate charge to the extra risk lenders are accepting as they move up the LTV scale.
Some lenders ‘hide’ such charges in the interest rate. But we think it is fairer to make a charge only to those customers who present the additional risk. As a HLC has to be quoted on the Key Facts Illustration, marketing and offer documentation, it is subject to the full rigours of competition and customers can take HLC free products if they wish to, although high LTV borrowers will find the extra risk they present to lenders taken into account somewhere in the package, perhaps less transparently than by way of an up front specific charge.
Yours faithfully,
Jeff Knight
Director of marketing
GMAC-RFC
Looking at flexibility
Dear Sir,
Lots of flexible mortgages are sold on an interest only basis to provide maximum flexibility for the client in the future. Overpayments, when they can be afforded, and a good investment plan will see the mortgage clear.
Should the clients have a financial problem in the future, at least they can reduce the cost of the mortgage to the minimum. This maybe not ideal, but it’s better than paying lots of admin fees to get the mortgage switched to an interest only.
Andrew Douglas
Ashley Law
Hiding behind data protection
Dear Sir,
News that Legal & General is rolling out its early warning system to advisers when a client misses a premium, so they can immediately look into it and investigate whether there is a domestic problem or maybe a direct debit problem, contrasts strongly with the attitude of mortgage lenders who prefer to keep this sort of information
to themselves.
If only mortgage lenders would contact us intermediaries on an early warning system. That way, there would be every chance that the increasing number of serious mortgage problems, which can lead eventually to property repossessions, may be avoided.
But then, that would be too sensible and simple. Mortgage lenders would rather keep it to themselves and hide behind their factitious understanding of data protection.
Danny Lovey
The Mortgage Practitioner
