When the Consumer’s Association published the first copy of Which? magazine out of a converted garage in Bethnal Green in 1957, I wonder if they realised how powerful the concept of clear and transparent product comparisons would become? Now, practically everything we pick up from a supermarket shelf has got descriptive labelling on it that clearly states the ingredients and other key features, so consumers can see how various brands compare. In the consumer financial services sector, comparative websites abound, all eager to show ‘best-buys’ to inquisitive would-be purchasers. This kind of product comparison has been taken to heart by the Financial Services Authority (FSA) itself, which publishes comparative tables for all regulated products on its website and pushes out the strong message of ‘shop around’ in all communications directed at consumers. Before you can compare products, of course, you need to be given clear, transparent information about them.
Not a seperate species
We have always held the view that commercial mortgage borrowers are not a separate species, but are financial services consumers that have a right to clear, simple information about commercial mortgage products, and that brokers selling commercial mortgages also need this information. We have, since day one of our business, provided an ‘indicative terms’ letter, which sets out full details of the product and mortgage contract for the broker, but feedback from our intermediaries told us that we could build upon this concept and produce a customer version that would really support our introducers. Demand was especially strong from brokers and IFAs that transact regulated mortgage business. They have seen the benefits to their internal process of providing the statutory Key Facts Illustration (KFI) to residential mortgage customers and they wanted a similar disclosure document to hand to commercial clients.
We responded by developing the Commercial First Illustration (CFI) for commercial mortgage customers. By developing the CFI, we wanted to innovate by providing brokers with a comprehensive illustration that they could use in the commercial sales process. We felt we could help set a benchmark for the market with a document that would provide visibility and peace of mind for all involved.
lnfluence
The structure of the KFI used in residential mortgages has certainly influenced the way in which we have designed our CFI. It provides full product details including the product, term, LIBOR (together with reset dates), margin, pay rate, loan amount and estimated net advance upon completion, along with details of the property and its value. It goes on to detail the repayment method (interest only or capital and interest), together with the monthly payment figure and any potential variations (i.e. when a fixed or interest only period expires). This is followed by details of all completion/legal fees and our early repayment charges (ERCs).
In terms of customer protection, businesses are generally presumed not need the level of protection afforded to individual consumers. However, the Unfair Contract Terms Act 1977 can sometimes apply to contracts between businesses, although this tends to apply only in relation to exclusion clauses (or clauses that seek to limit liability).
Transparency
Nevertheless, the founding principles of contract law require transparency, and for key clauses to be clearly highlighted. Today’s regulated financial services environment means that brokers are very much mindful of the potential redress that can take place against an adviser and that delivering best practice to clients is the surest way to protect the commercial potential in a broking business. By providing genuine good service an intermediary can create and maximise the opportunity to cross-sell other products, encouraging repeat and referral business
Bearing all these factors in mind, the CFI can provide a real benefit to the broker as it helps simplify the products and provides transparency around the mortgage terms being offered. Our hope is that the CFI will encourage even greater intermediary, and customer, confidence and help set new standards in the commercial mortgage lending sector.
