The bottom has fallen out of the mortgage sector with recent figures showing mortgage approval levels for homebuyers have fallen by around 64 per cent over the past year. Bank of England approval levels for homebuyers have dropped to levels last seen in the 1990s and new mortgage approvals for homebuyers are at the lowest levels for years.
But the good news is that there are still opportunities out there for mortgage intermediaries to make some good money, if they put in the groundwork. For the worsening economic climate lends itself to greater sales of protection insurance. The number of properties repossessed by mortgage lenders in the UK has risen by 48 per cent in the past year. The Council of Mortgage Lenders said there were 18,900 repossessions in the six months to June, up from 12,800 in the same period last year, and there is worse to come.
The sharp rise is due to lenders pushing up the rates of some products while withdrawing others completely. This is happening against a backdrop of increasing unemployment and rising inflation. When people see the hardships their neighbours are facing they take steps to ensure that they too do not lose the roof over their heads. Yet Mortgage Payment Protection Insurance (MPPI) cover continues to be a low priority on a monthly home expenditure.
Adverse publicity
This is partly due to the adverse publicity sounding payment protection insurance (PPI). Some of the criticism is warranted, but mostly it is concerned with lenders adding payment protection insurance to a loan – often when the client has not sought cover. The worry is that the constant drip, drip of bad publicity results in members of the general public refusing to consider buying suitable cover. Similarly, intermediaries that are selling, or thinking of selling, this insurance will think twice and ask is it worth all the hassle?
But it is important to remember that the FSA treats MPPI separate from other forms of PPI. Higher standards of cover have helped differentiate insurance covering mortgage payments from other PPI policies. And it is by actively selling MPPI policies that brokers could be shoring up their own bottom line.
But since there are far fewer clients coming through the doors, brokers need to be mining their existing client bank to identify those that they can cross-sell to. Having identified clients due to remortgage, or those that have proved open in the past to being sold additional products and services, intermediaries should be phoning or writing to them advising of the absolute necessity of having this cover in place.
By telling them that they can go to you directly for a policy, and that this can work out up to 80 per cent cheaper than on the High Street, will show you in a good light and open the door to a new income stream. Products in this sector have also advanced. For example, MortgageProtector offers the flexibility of tailored cover to suit customers needs, combined with affordable pricing. It comes with additional customer benefits including free legal expenses cover for employment and bodily injury disputes and free 24-hour health & medical, counselling and legal advice help lines.
Enhancements
These enhancements should make it easier for customers to understand and advisers to recommend and, ultimately, for brokers to make good rates of commission. In fact, Paymentshield recognises the difficult operating environment for brokers at present and has introduced enhanced commission rates that pays two years’ commission upfront meaning a broker can earn up to 50 per cent commission within one month of the policy start date based on a typical commission rate of 27.5 per cent.
Product providers are always looking to make product access easier for brokers. They are tying up with mortgage networks and mortgage sourcing systems to make the selling as easy as possible for the intermediary. In this way they can ensure their clients’ mortgage and home is fully protected while reinforcing their own income stream.
In a very sluggish market it is critical for brokers to maximise income from each advised sale. At the same time brokers can be confident they are doing the best for their clients and adhering to the demands of Treating Customers Fairly.
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TCF
The Financial Services Authority (FSA) has been disappointed by industry reaction to its Treating Customers Fairly (TCF) initiative. It had set a deadline of last March for firms to have appropriate management information or measures in place to test whether they are treating their customers fairly. Only 13 per cent of a test sample of firms came up to scratch. Still, the regulator expects 80 per cent capable of meeting the final December deadline.
By then all firms are expected to be able to demonstrate to themselves and to the regulator that they are consistently treating their customers fairly.
To meet the December deadline firms will have to:
· demonstrate that senior management have instilled a culture within the firm whereby they understand what the fair treatment of customers means
· be appropriately and accurately measuring performance against all customer fairness issues materially relevant to their business, and be acting on the results
· demonstrating through those measures that they are delivering fair outcomes
This may be seen as a problem for an industry that is largely based upon products containing definable terms and regulations and often capable of being tick-box compliant. But this should not be used as an excuse to ignore or put off implementing TCF priniciples.
Make no mistake, the regulator is taking this very seriously. It has undertaken a series of ARROW visits to see how firms are progressing towards the TCF targets and has promised to take tough action on the worst firms by fining and naming and shaming them.
The regulator is committed to consumer protection. As such it is concerned that brokers are offering best advice to their clients. That is why it is imperative, for example, that financial intermediaries make it clear to clients that they can insure against being unable to meet their mortgage commitments should they find themselves out of work because of accident, sickness or unemployment. Product providers need also to be aware of what the customer’s requirements are and this must be incorporated into the design process. Providers also need to consider whether their existing products meet customers’ needs as well as taking an interest in how that product is being distributed and to whom. In all aspects of business, including the sales process, lenders remain aware of their responsibility to TCF and take the opportunity to discuss and review what this really means to everyone associated with the business, including supporting intermediaries. For intermediaries, ICOB makes it clear that an adviser must also take steps to ensure that any insurance policy is suitable for the customer, taking into account the customer’s demands and needs, including whether or not they have any existing cover. This is especially true when concerning mortgage payment protection insurance (MPPI). The FSA has confirmed that sales of regular premium prime mortgage PPI, on an advised basis, are most likely to meet its requirements offering a more thorough assessment of the customer’s demands and needs when arranging protection insurance. However, according to figures from the Council of Mortgage Lenders, less than 30 per cent of homeowners have taken up MPPI to protect their mortgage repayments. That’s an awful lot of people that could come seeking redress because their broker failed to inform them that they could insure their repayments against accident, sickness and unemployment.
The blockage in the mortgage market caused by the credit crunch has seen many people put off selling their homes and look to let it out instead. At the same time many prospective house buyers are choosing to rent while the turbulence in the markets plays itself out in the hope that a bargain can be salvaged from the wreckage.
But letting out a property to tenants brings its own set of problems, not least the changes that need to be made in insurance cover. Paymentshield has recognised the unique challenges that this poses and has developed a new and improved Landlords Buildings & Contents Insurance policy to meet those challenges. The revamped product boasts several new cover features included as standard in addition to widening the policy acceptance criteria and has been awarded a 4 star rating from Defaqto, the independent financial research agency.
New cover features now included as standard include: accidental damage to locks or theft of keys to the insured property, unauthorised use of metered electricity, gas or water, damage to gardens caused by attending Emergency Services and loss of metered water following damage to the buildings.
Free and confidential professional advice on personal legal and tax matters is available on a new helpline service Eurolaw Legal Helpline.
Paymentshield has also expanded its acceptance cover into a wide range of tenancy arrangements, including students, those on benefits and multiple occupancy of up to six tenants per property. Landlords will also be pleased to learn that up to 30 per cent no claims discount on both buildings and contents covers is available.
