Lending, pretending or ending?
Dear editor,
Well, it’s official. The FSA has warned lenders that thousands of UK borrowers will fall into serious arrears over the coming 18 months. As the USA is now heading for a major recession (according to President Bush) then we have to expect that, if we have problems in the world’s biggest economy, then it will be hard to avoid knock-on effect issues here in the UK. The US has already seen the biggest cuts in interest rates for 25 years and a further 0.5 per cent cut is expected.
Meanwhile, here in the UK, borrowers wait to see if the Bank of England will ease the pain and drop Base Rate in the very near future. In addition, it seems Prime Minister Gordon Brown and his merry men are very close to announcing plans to ensure there are no repeats of the Northern Rock incident. Interestingly, any further rescues will be on a secrecy basis, no doubt to avoid runs on the banks. Many pundits believe the pictures on television – showing massive queues outside Northern Rock branches – are probably one of the most graphic and most negative memories the industry has faced.
Lenders here, according to a very well known industry figure, are either lending, pretending or ending. Three little words that, in reality, probably sum up very well the status of the UK mortgage lending community. There is now little doubt that volume aspirations for the majority of lenders will be a lot less than 2007. Not all, I hasten to add, but they are very much a minority. The liquidity crisis and funding challenges have effected all lenders and a lower volume expectation is not exclusive to the non-balance sheet players. They too have their funding issues and I am sure, with credit and risk now in control, most lenders will want to ensure that any growth will be managed carefully – who can blame them?
Eddie Smith
Managing director
Professional Mortgage Packagers Alliance
Dear editor
The national personal finance editors did not hesitate to jump on the news that the Financial Services Authority (FSA) had fined HFC Bank Ltd over a million pounds for failing to take reasonable care on the advice it gave to customers buying payment protection insurance (PPI). More headlines of ‘useless loan insurance’ talking about consumers being ‘ripped off by overpriced and inadequate PPI’ abounded.
No doubt this latest round of negative publicity caused many brokers to throw up their hands in despair. PPI is never at the top of consumers’ list of things to buy when they take out a mortgage and many will have struck it off entirely following this weekend’s coverage. Their appetite for cover isn’t helped by the inaccuracies in much of the reporting, stating that they would probably have to wait six months before they can start to receive any benefit and cannot claim for common ailments, such as backache.
Rather than turn their back on PPI, however, I would urge brokers to continue to bring the value of appropriate cover to the front of customers’ minds.
The FSA itself has stated on numerous occasions that a suitably tailored mortgage payment protection insurance (MPPI) policy can provide valuable protection for consumers – and therein lies the key. Companies need to give brokers access to policies that can be tailored to the individual needs of their individual customers. If they’re self-employed, then the broker can provide them cover for accident and sickness. If their customer enjoys generous sickness benefits from their employer, then the broker can arrange back to day one cover for unemployment after a 30-day wait period, while providing them with sickness and accident cover to kick in after their employee benefit period concludes. And if brokers aren’t sure about their sales process and regulatory obligations, then companies must provide extensive training and support to help them deliver a compliant sale every time.
Arranging appropriate cover doesn’t have to be hard for the broker or expensive for the client. Brokers simply need to select their provider wisely and choose one that is there to help them deliver a policy that their customer can claim against.
Given today’s uncertain economic climate and the duty of care brokers owe their customers, how can they walk away from this valuable insurance that can mean the difference between a customer keeping a roof over their heads in times of trouble?
Paul Thompson
Managing director
Assurant Solutions Intermediary
Running scared?
Dear editor,
I read with interest the recent news describing how underwriters could be too scared to sign off problem cases and turn down applications for no good reason. (Mortgage Introducer, 26 January 2008)
I was particularly struck by the comment that ‘the lack of common sense might instead be a completely valid lending policy’.
The problem many large-scale lenders are beginning to suffer from is a reliance on computer-driven decision models which reduces flexibility, and a lack of investment in skilled and experienced underwriters who, unlike the computer, can look at a case in the round and use common sense where appropriate.
When the market was rolling, this worked by offering a fair service at low cost. However, as lenders review their policy and tighten criteria, cracks are appearing as more cases require human scrutiny.
As the market review of credit policies plays out, we are likely to see a polarisation between those lenders who offer keen pricing but only on the most straight forward risks and specialist lenders who have invested in ‘common sense’.
Yours sincerely
Tim Sturley
Heritable Bank
Sticking to its guns
Dear editor
I would like to congratulate the Financial Services Authority for continuing its drive for ‘Treating Customers Fairly.’ Not everyone agrees with it, but the regulator is sticking by its guns and is giving help to advisers that ask for it. Implementing such a far ranging initiative is going to be hard for any firm, from the one man band all the way up to the large brokerage and so any help that the FSA can give to me is welcome. I will be attending the road shows and taking what I can from the sessions – I’m certain I won’t be the only one.
Via email
Big Brother? Big bother more like
Dear editor,
I read with interest Grant Bather’s article on networks (Mortgage Introducer, 26 January 2008). As a one-man operation, my time is limited and with the increasing regulatory provisions more of my time is pushed towards form filling, rather than doing my job. I have considered joining a network but have always come to the conclusion that I would be better off on my own – I can only see networks dictating to me what they need, and when. I work at my own pace, and the FSA must recognise that every firm is different. An ingrained attitude to business practices is inherent in each of these, but is their own, while a network model – in my opinion – does, if it intends to or not, squeeze individual firm innovation. Of course, the FSA would find it easier if everyone was a network member, but then surely this would take away the need for principles because it would mean that everyone was singing from the same hymn sheet.
Via e-mail
David’s urged to join Goliath
Dear editor,
The Towergate Partnership has been described as a ‘consolidation machine’ and one that will continue to ‘roll on’ and acquire new brokerages. Many see this as working to the detriment of the insurance sector by removing individuality and niche players. However, having recently been acquired myself, I feel well qualified to advocate the benefits of such a partnership.
I believe Towergate is a broker’s best friend – it provides a platform for success, access to expertise that wouldn’t previously be available, opens up a wider and more level playing field and offers resources.
The individuality of my business isn’t being eroded, if anything it will grow. Towergate is a centre of excellence for players in niche sectors – we are treated as entrepreneur partners, rather than employees.
During the acquisition, we agreed a mutually convenient timeframe, the resultant plan followed all the set deadlines and communication was excellent. Areas of my business that need working on have actions and timescales, and every aspect of this acquisition has run like clockwork.
The Partnership has acquired over 130 specialist insurance businesses – allowing us smaller ‘Davids’ to join a ‘Goliath’ and enjoy the same benefits as our larger counterparts. I urge others to join the team and take advantage of the benefits on offer.
Yours sincerely
Simon Burgess
Managing director
British Insurance
