No sign of an end to shenanigans in Westminster, the Mortgage Market Study arrives, and a new sector is born
I try not to mention the dreaded B-word these days, especially as by the time you read this no doubt something else tumultuous may have happened. (In fact, even as I write, Nick Boles MP has just walked across the House of Commons divide.) If you have not watched the incredible Laura Kuenssberg’s behind-the-scenes look at the whole thing, The Brexit Storm, then it is a worthwhile journey. She sums it all up quite nicely: “It is like a pantomime without the jokes.”
What is evident is that, despite the fighting talk, absolutely no one seems to know how to do any better, or even what any of it really means for the country as a whole.
Whether you are for it or against it, it is a frightening scenario that many people charged with representing us seem incompetent and self-serving.
We can only hope that the decent politicians among them – yes, there are more than a few – will be able to stand up and engineer a compromise when it really matters.
Hopefully, rather than voting down every other option, by the time you read this there will be something positive either way.
Meanwhile, the uncertainty that all these shenanigans brings does not help anyone and makes it very hard for businesses to plan.
Against this backdrop, it is not surprising that, according to Nationwide, London house prices fell 3.8 per cent in the three months to March, while the whole country grew by just 0.8 per cent. According to UK Finance, February saw the fewest mortgage approvals for some six years. The Office for National Statistics has pointed out that the affordability gap between the cheapest and most expensive places to live in England and Wales increased to its widest point in 20 years.
All of this aside, there are green shoots, as buyers are returning to the market to try to take advantage of lower prices and low interest rates, and because life has to go on. It was interesting to see a new term pop into the economy recently, as the ‘flat white’ sector (millennials in digital and creative businesses) started to overtake more traditional industries as a large driver of economic output. The world continues to change and adapt, as must we.
In the markets, the three-month Libor has dropped to 0.83 per cent, while swap rates have continued to drop their trousers like campaigners in parliament.
- 2-year money is down 0.08% at 0.95%
- 3-year money is down 0.10% at 0.98%
- 5-year money is down 0.11% at 1.05%
- 10-year money is down 0.12% at 1.19%
The next thing to mention is of course the FCA’s Mortgages Market Study, 51 pages of good, bad and, if not exactly ugly to be fair, then worrying.
First up, of course, it is good to see that the market is “working well in many respects”. It is also good to see that there will be a consultation on overhauling affordability calculations to help mortgage prisoners, most notably those held by inactive or unauthorised lenders. It will be valuable to have a more proportionate affordability assessment to help these people.
It is awful to see the sale of a book of borrowers to institutions that have no obligation to offer a better deal or even just the security of a fixed rate.
It will be a tough nut to crack, but if we work together with the FCA, consumer groups, lenders and the will of government, this can be achieved. What we really need is some accurate data from these institutions about the loans they hold as a starting point.
Among all this good, however, there is still the unhealthy obsession that “price is everything” and the worrying assertion, no doubt expounded by some lenders and digital companies, that some consumers are being channelled unnecessarily into advice.
There was also the claim that advisers pick the first available product to get a quick procuration fee rather than take more time to find a cheaper rate. I am sorry but, biased I may be, that has not been my experience.
Of course, there is always the old adage, ‘put it where it fits’, but most of the conversations in our office tend to be around finding the most competitive way of doing something rather than just simply doing it. This is contradicted by the findings that those going through a broker are more likely to get a cheaper rate.
This goes in conjunction with a proposed tool for consumers to identify which lenders will lend to them. A broker’s skill is operating within the lines of criteria; knowing that one lender will do something for their client that may not be published and hence, yes that is right, getting a cheaper product than the client could have found alone.
This also filters into the idea that there should be more execution-only business and many borrowers unnecessarily get advice. Is this because new digital suppliers are lobbying for this? If so, the wrong people are talking to the powers that be.
What Really Grinds My Gears?
We have just seen a paper from the FCA detailing how we need to act to reduce the number of mortgage prisoners. The key issue being that many of these are housed with inactive or unregulated lenders who cannot offer better terms for these borrowers.
It therefore seems nonsensical to exacerbate this issue by continuing to sell loan books to these types of institutions. However, that is what the government has just done in selling a further 66,000 mortgages to investment bank Citi, an ‘inactive’ lender.
Perhaps the deal, worth around £5bn, is good value, but there needs to be some protection built in for these customers. Yes, some should not have had mortgages in the first place, but that does not mean we should treat them as a profit-making machine.
In one move, the government seems to have made a mockery of its determination to help and its action will leave many scratching their heads.
I do understand why some lenders would want this, and I am not naive enough not to realise that some people will want the ability to just do their own thing.
My worry is that all I see going down this route is a dumbing down of advice and more poor consumer outcomes. Take a simple product transfer where clients do not take advice and do not realise they can save thousands by simply reducing their loan term.
We recently had an example of a client who went direct on a PT and ended up mistakenly taking a five-year fixed rather than a penalty-free tracker, which will cost them. People need advice.
What we need to do is to improve the client journey with technology and make the advice delivered more efficient, but no less valuable.
In essence, mortgage prisoner work aside, it looks as though this is a confused piece of work, almost as if some of the conclusions were decided before the evidence was assessed and were based on questionable data.
Battles are coming down the line but, as brokers, we need to stand up for what we do and continue with our determination to find the very best, most suitable product for our clients. We need to educate the public more about what we do and be damn proud about it.
On a separate note, after consultation, the FCA has decided to increase the ombudsman service’s award limit to £350,000 for complaints about acts or omissions by firms that take place on or after 1 April 2019. According to the usual excellent guidance from Ami, this means that, if your professional indemnity cover has no limit, then there will not be any need to take action before renewal.
However, if your policy has a limit (say £150,000) then you will need to obtain new cover or have a sufficient capital buffer to cover any shortfall. The three weeks’ notice given was totally ridiculous.