2006 looks set to be another busy and uncertain year for brokers. Will house prices and sales rise over the next 12 months? Will we see a return of first-time buyers to the market? How will the buy-to-let sector fare this year? All questions waiting to be answered. However, these are not the only issues that will affect the market. The FSA are currently reviewing the impact of mortgage regulation and the rules that the industry currently abides by. 2006 could be the year of MCOB changes and we can be certain new areas of debate and concern will be highlighted.
The New Year brings with it new challenges and in 2006 it seems certain the FSA will be using a ‘stronger hand’ to enforce their rules and ensure all broker firms are fully up to speed and compliant with them. With 14 months passed since ‘Mortgage Day’ the FSA will be looking to firmly enforce its rules on any firms still practicing outside the regime, be it in the areas of Financial Promotions, record-keeping or in the advice they are providing.
However, despite promising to take a harder stance in 2006, the FSA has also pledged to adopt a more principles-based approach in an effort to improve its relationship with brokers, reducing its rules by up to 40 per cent while encouraging industry solutions and taking a flexible stance to modernise and simplify its rule book. While this may bring with it its own problems, the areas of Financial Promotions, Home Information Packs (HIPs) and the future of networks all look set to dominate early proceedings, along with a host of new issues that may rear their heads in 2006.
HIPs causing confusion
High on the agenda across the sector is the introduction of HIPs. With the packs set to go live in June 2007 brokers have be somewhat sceptical of the plans, especially after the furore surrounding the u-turn regarding the government’s (now defunct) changes to Self-Invested Personal Pensions (SIPPS).
Following the announcement that HIPs are to go live in June 2007, brokers have become increasingly concerned about the lack of information and detailed plans on the issue from the government. James Carter, IFA at Virtue Financial, argues that the recent SIPPs reversal has left him wondering if the same course of action is in store for HIPs. “A major problem with HIPs was highlighted by the government’s u-turn in the pre-budget report in relation to SIPPs,” he says. “This destroyed hours and hours of many advisers’ time and increased costs involved in planning, so how can we be expected to plan comprehensively when the government has already been proven to undertake last-minute unplanned changes?”
Yet Carter feels that unless advisers began researching and acting on the potential impact of HIPs, estate agents will capitalise on the market. “The Society of Mortgage Professionals has warned that estate agents will use this as an opportunity to monopolise mortgage business and I agree they may increase their share if we don’t act.” A sentiment shared by James Cotton, mortgage specialist at brokers London & Country. He says: “HIPs are being introduced in an effort to improve the housing market, whereas the housing market jumped on the SIPPs opportunity. I don’t think there is much chance of the government abandoning HIPs, the main contention instead being what they will look like and what is included in them.”
With contrasting reports on how to effectively deal with the impact of HIPs, some brokers are already working on their response, while others have decided to wait until the fine detail is revealed. While not the best solution Sarah Gwilt, mortgage adviser at Dickson Lishman Prince, argues there are very few options currently available to brokers. She says: “I cannot afford to waste time on something that is still up in the air. However this is not the way I, and I’m sure a lot of other people, like to do business, especially those companies that have several registered individuals and need to put training courses together.”
With the final HIPs proposition still unclear, with brokers unsure of exactly what the packs will include and how to implement them, the debate is sure to intensify over the coming months until the exact information over the packs is revealed.
Stamping out non-compliance
Financial Promotions was another growing concern throughout 2005, and this looks set to continue in 2006, with firms and the FSA keen to rid the market of non-compliant promotions. Bill Warren, director of The Complete Network and AMI board member, says Financial Promotions was an issue that came up at almost every AMI board meeting and over the past few months many firms have continued to express their anger that competitors are still getting away with non-compliant advertising.
Ray Boulger, senior technical manager at John Charcol, argues the time is now right to expect firms to have fully caught up with the impact of regulation, and there is no excuse for neglecting the set guidelines. He says: “The FSA will definitely be looking to up the ante with regards to Financial Promotions. Last year there was a lot of talk about non-compliant advertising and the FSA have now got to the point where they can focus and target the non-compliant firms. I think the FSA was surprised by how many non-compliant promotions existed and they will have to act on this, enforcing the rules they have in place. They can’t afford not to take it seriously.”
Boulger is also surprised that ‘basic’ rules have still to be implemented. “The Financial Promotions rules in place need a general revision,” he says. “For regulated firms that are promoting unregulated products, such as buy-to-let or second charge, the firm has to adhere to two sets of advertising rules. The rules state that the information must be factual, clear, and concise but to promote some products you must have two APRs and two risk notices, and some of the information needed when promoting buy-to-let is not strictly true. How can this be clear and concise? In some respects we are caught in a catch 22 situation and after 14 months it is disappointing that things like this still haven’t been sorted out.”
Networks under pressure
Networks have come under the FSA’s microscope in recent months, with a study conducted in late 2005 finding a ‘number of potential shortcomings in areas such as compliance resource in Principal firms’. The regulator has promised to take a closer look at networks and their handling of appointed representative (AR) firms. A factsheet has been provided on improving network standards, including the provision and monitoring of AR quality checks and their compliance, a move that Alison Hewitt, head of department of the FSA retail firms division, says needed to be done. She says: “We expect networks to apply appropriate controls on their ARs so these firms maintain the same standards as directly authorised firms in their dealings with customers. We will be carrying out further work to monitor the position and will take appropriate action where concerns remain.”
In particular Hewitt drew attention to the compliance and supervision of ARs, membership admission and the use of procedures to allow senior management to analyse and control the risks associated with ARs. Sally Laker, managing director of Mortgage Intelligence, admits that for networks 2006 will be an important year. She says: “The recent FSA document on networks made for interesting reading and I am sure it will now be looking to ensure both brokers and networks are observing rules and following the correct procedures and processes. We have all been through regulation and now the FSA is looking to monitor how brokers and networks are keeping up to date with them.”
Peter O’Donovan, mortgage manager at Bestinvest, agrees networks face a tough time ahead. “I can see a few networks falling by the wayside as it must be difficult to look after so many people that you don’t know,” he says. “While the bigger networks may increase I can definitely see some of the smaller networks fading.”
New issues
Despite old issues continuing to cause concern in 2006 the New Year is certain to bring new topics for debate and a number of brokers have predicted the FSA will be looking to expand the areas that it covers. While concern has arisen on the state of the lifetime and endowment markets, Harry Katz, principal at Norwest Consultants, believes the regulator will ‘dip its toes’ into other sectors that have so far eluded regulatory control. He says: “I think that the high rates charged for sub- and non-status loans may well attract regulatory attention in 2006.”
O’Donovan agrees the FSA might look closely at the growing buy-to-let market. He said: “There are now so many different variations on what is available, what you can borrow and so on, that I wouldn’t be surprised if the FSA took a harder look at the sector.” O’Donovan also believes the regulator will continue its close investigations into the lifetime mortgage market.
Cotton feels the area of customer retention will come under close scrutiny. “I think retention will come up a lot in 2006,” he says. “Lenders and brokers are increasingly looking at ways to retain clients, with some lenders paying brokers through a retention policy. I can only see this increasing and it leads to implications for example, with clients not going on to a new deal, some parts of the process, including KFIs, may be left out.”
Busy times
2006 looks set to be a busy year; both for intermediary firms and the regulator and with the rules now more than a year old the FSA will surely be taking a harder line towards those that flaunt the guidelines.
The intensifying HIPs debate is set to rumble on for a number of months, with brokers keen to see government intervention by giving greater advice and guidance on the matter. Mark Glithero managing director at surveyors Lexicon, reiterates this point. “I don’t want to double the number of surveyors I have only to find out later that the plan has been ditched.” However with HIPs not yet finalised the market will have to wait until guidelines are set. Only when this is done will brokers feel more secure with their introduction.
Networks also look set to be targeted, working under strict guidelines and scrutiny, which may force brokers to reconsider their position. With a small number of firms admitting they rushed into a decision on their regulatory status prior to ‘Mortgage Day’, networks may have their work cut out retaining their members.
Mystery shopping campaigns also look set to make a return in 2006, while the increasing reliance on technology has similarly been discussed as a growing concern especially with regards to lenders’ service standards. Procedures surrounding the handling of endowment complaints continue to be under the regulatory spotlight, along with it’s growing interest in the lifetime mortgage sector.
After a year of regulatory consolidation in 2005 anyone looking for a quiet year in terms of updates and FSA intervention looks set to be disappointed. However, the simplification of the rulebook, and a desire by the regulator to improve broker relations should make 2006 an easier year for brokers providing they continue to comply with the rules.
Grant Bather is a reporter at Mortgage Introducer
