There’s no doubting the power of the press.
The media is continually demonstrating how it can influence the actions of governments, corporations, consumers and even terrorist groups, by the way in which it reports topical stories.
Whether or not that is a good thing is open to debate. The media argues that it simply acts as a mirror to public sentiment, reflecting the views and opinions of its readers – the great British public. Others take a more cynical view, arguing that the media sensationalises the news in order to increase sales and circulation figures. I suspect this debate will continue to rage for many years to come.
Love/hate relationship
Even in the world of financial services, the power of the press is evident. The national press has enjoyed a love/hate relationship with financial institutions for many years. Financial services companies are big spenders on advertising and are therefore loved by advertising departments. However, in the newsrooms and among the editorial teams the story is very different. Journalists are not shy when it comes to exposing what they believe are bad practices or products which are not always in consumer’s best interests.
The reality is that sometimes the press are guilty of over-exaggerating stories, but on other occasions they are not. They can, and do have the effect of making organisations think twice before launching a new initiative or product, which is not necessarily a bad thing. Can you, for example, imagine what governments would be like if they didn’t have the press to keep them in check and unearth their less savoury activities?
In the intermediary mortgage market we’re blessed with publications such as Mortgage Introducer which is written by journalists who know their subject and who stick to the facts without finding it necessary to put a spin on stories. In fact, I think a key skill of MI journalists must be avoiding lender spin and being able to read between the lines of press releases to get to the real story.
However, I do believe there is evidence that a growing number of brokers are influenced by the press, especially when it comes to making product choices and giving client recommendations. You only have to look at the drop in the sales of payment protection insurance (PPI) to see what I mean. I suspect the same is also happening with self-cert mortgages, although the increased use of affordability calculations is also bound to be having an effect on self-cert sales.
Adverse publicity
Mortgage payment protection insurance (MPPI) sales have been falling over the past few months and there is little doubt that this is a direct result of adverse publicity. It is incumbent on every broker to consider their clients’ ability to continue to pay their mortgage if they hit hard times.
Research continually shows that most people would struggle financially if they were off work for more than a few weeks and yet the penetration levels of MPPI have been falling over recent months. Against an industry target of 50 per cent MPPI penetration, the figure currently stands at 27 per cent and is heading south. That means that nearly three-quarters of borrowers may not have any effective means of repaying their mortgage if they hit hard times.
The fact that the Office of Fair Trading is passing on the findings from its recent investigation into PPI mis-selling to the Competition Commission, will only deter more brokers from recommending what they believe to be a problematic product. After all, why court the possibility of trouble in years to come; isn’t it easier to simply side-step the issue altogether?
It is highly probable that the same thought process is going on with interest only mortgages. Every time interest only deals are mentioned in the press, it is because they are being singled out as the next big mis-selling scandal. If used irresponsibly, interest only mortgages can lead the unwary into all sort of trouble, but isn’t it the role of advisers to ensure that their clients understand the facts?
The reality is that interest only mortgages have a continuing and important role to play – even where first-time buyers are concerned. It is my belief that, in certain circumstances, interest only can be a good way for first-time buyers to keep costs to a minimum during the first few years of their mortgage, as long as they appreciate that they need to put a repayment vehicle in place. The key is good advice, but if brokers are too afraid to become involved in what they perceive to be ‘dangerous products’ there is little chance of their clients receiving the advice they need.
Primary purpose
Brokers need to remain focused on their primary purpose in life, which is to give their clients impartial and professional advice based on their specific needs. If the solution to a client’s needs is to recommend an interest only mortgage, PPI or a self-cert deal, then the broker should not waiver from their duty. It is up to them to recommend the most suitable product. Just because the press doesn’t like a product doesn’t mean it should fall off a broker’s radar screen.
I appreciate the pressures that brokers are under to justify their recommendations, but that’s the nature of the job they have signed up for. If you’re confident of your recommendation, ensure you have correctly documented why you are taking a specific course of action, and then go for it.
Journalists may have strong opinions, but there are very few who are qualified mortgage advisers.
