Attention. Retention is causing tension in the industry.
This whole topic is a hot potato at the moment, with BM Solutions being the latest lender to follow First Active, Accord Mortgages, i-group and The Woolwich into the fray. Surely it is good news, with brokers now being paid money that they didn’t get before? But could it be that not everyone is happy with these developments because the normal distribution chain is being challenged?
It’s understandable from a lender’s perspective as they are trying to protect their long-term interests. In fact, they have already been trying to do this subtly over the years by offering existing borrower rates to good payers with persuasive requests. However, it has finally dawned on the lenders that although the borrowers have been paying them, they are actually the broker’s clients, not their own, so as such need to be more pro-active in order to retain business.
It could be argued the lenders have had it too good for too long, with standard variable rates (SVR) being charged to the naïve. Plus, they have failed to financially recognise those brokers who are putting their client’s interests first and telling them to stay-put on an existing borrower deal.
This is being addressed by the lenders above (with everyone else expected to follow suit) and, let’s face it, there’s a lot of work involved for the broker, as all of them will need to complete a new factfind and thoroughly research the market before they can say whether the retention product is the best solution. However, what lenders have apparently not foreseen is the knock-on effect this change of direction will actually have.
Firstly, some brokers will choose not to research the market at all. Others will realise the often-reduced retention procuration fee will fail to cover all of their costs, so the client will simply be charged a fee to make-up the difference.
Secondly (and I guess inevitably), this is shooting up the food-chain, like a proverbial rat up a drain-pipe, to the mortgage club or network that introduced the broker to the lender in the first place.
I can sense a sharp intake of breath from the lender chief executives as I write. To elaborate, there are certain well-known single mortgage clubs and networks that contribute as much as a quarter of the lender’s total annual intermediary new-business targets, and unless I’ve missed something, their contribution appears to be unaccounted for. This is particularly poignant for the networks who will be closely supervising their brokers to ensure the correct advice has been given so they will effectively be expected to work without reward or simply shave the already-reduced retention procuration fee.
The proactive lender approach is not all about procuration fees either. I have heard of some lenders approaching borrowers directly without notifying their broker, while others have upped their discharge fees (something they reserve the right to do) so a remortgage becomes less beneficial. Furthermore, they have been known to simply leave it to the last possible minute before advising of the pending jump to SVR so they can still earn at least one or two month’s payments at a high margin until the remortgage completes – think of how much this aggregates across their lending book. The SVR change can also be used to influence borrowers to re-sign.
To conclude, the mortgage market and distribution chain is very complex and this latest trend does not quite offer the complete solution. However, as this is only the starting point, expect refinements to follow.
Mainstream
Northern Rock has launched a series of one and a half year fixed rates. These top the charts with 4.49 per cent to 75 per cent loan-to-value (LTV) and 4.59 per cent LTV to 85 per cent LTV with a flat £695 completion fee. In keeping with its normal policy, you can overpay down to a £1 mortgage balance without being charged for the privilege.
By the time you read this, Lambeth Building Society will have shut its doors to new business as it prepares for the amalgamation with Portman Building Society, which is expected to be completed by October.
Ipswich Building Society has a 2.25 per cent discount until 30/9/08, creating a payrate of 4.15 per cent up to 95 per cent LTV.
Halifax has restructured its remortgage range with the option to remove the percentage completion fee by loading the interest rate.
Buy-to-let
Capital Home Loans is allowing the combined rental from each individual room inside a house in multiple occupancy (HMO) to be used in assessing affordability. The tenants can also be students and/or family members.
Paragon Mortgages has issued a very useful guide on HMOs and the recent legislative changes.
Mortgage Express is expected to lower the minimum valuation stipulation to £40,000 on its next re-price, which should help various geographical pockets across the country.
Self-cert
Kensington Mortgages is close to launching a prime self-cert offering for the first time via selected outlets.
The Mortgage Business (TMB) has split its trackers into the following LTV bandings: 50/55/60/65/70/85 per cent – understandably the lower the LTV, the lower the price. This is perhaps a tad over the top as the difference is negligible, and the sourcing systems will certainly be hoping this policy does not catch on with other lenders.
SALT could be applauded for its sensible approach by championing its 3.75 plus one income multiple in e-mail marketing but I think it may actually be pushing it because it believes it is high.
Adverse
BM Solutions has been quite quiet on this front so far this year, but its latest round of trackers are putting it back on the pace. For example, its medium two-year tracker allows three recently missed mortgage payments and is priced at 6.19 per cent (6.35 per cent on self-cert) without extended early repayment charges (ERC). This is a huge improvement on its previous uneven step-down tracker, which was priced at an initial rate of 6.99 per cent in years one and two, and 6.49 per cent in year three.
