Monday, August 11, 2008

The triumph of hope over experience

No, not second or subsequent marriages but the attitude of a golfer I met on holiday last week.

As we played it turned out he was a mortgage broker/arranger in the West Midlands. Commenting that he can't be very busy he claimed to be snowed under with work - remortgages? I asked but got nowhere.

Then I commented that times will be tough for some time. I was amazed when he claimed that this will be a minor slump and over by the end of the year.

With idiots like this around there is no wonder some people take out inappropriate mortgages.


FormerTory said...

Hmm. An idiot, perhaps; but most people end up with inappropriate mortgages for different reasons entirely. First is Mortgage Regulation, brought into force by the FSA in 2004 with the intention of ensuring that every mortgage borrower gets good advice on the nature of the commitment they're taking on, and to ensure that every borrower has a mortgage matched to their particular needs and concerns. As usual, the FSA experts put together a rigid, rules-based approach backed up by draconian monetary and other penalties for getting the process or the advice wrong. They also left a loophole; a means by which lenders could allow junior staff to give quotes without - apparently - giving advice.

Result? It costs so much to train a mortgage adviser, get them through the exams, check their work quality, ensure they adhere to compliance rules and do enough business to keep their compliance rating (failing which you have to spend a fortune again putting them through exams and compliance again) that the High St lenders quickly realised several things:

1. If you don't give advice, you don't need advisers
2. If you don't need advisers you can save pots of money
3. If you centralise everything to control your compliance risk within acceptable bounds, you save even more money and the only person who suffers is the customer - and who cares about them, anyway?

So (and I suspect you haven't applied for a mortgage in some time) if you go to a High St lender you'll get pointed towards whatever product they've decided they're targeting this week. But the paperwork will say "We are not advising you; we are giving you information so you may make your own informed decision....."

That targeting is the second reason. I've had to sort out a number of people's messes for them when they've ended up in the wrong mortgage deal because the Bank wanted to sell offset mortgages or their new shit-hot fixed rate / high fee mortgages that month. Even when you claim not to be giving advice, there are ways of steering people to what you want them to have - ask any bank clerk who's got a sales target.

So, once again, we have the Law of Unexpected-But-Which-Should-Have-Been-Completely-Expected Consequences, from an agency created by none other than our dear PM. The very mechanism which was supposed to ensure fairness, transparency and understanding has resulted in precisely the opposite.

The market conditions prevailing just now are producing a crop of wonderful opportunities for High Street lenders. As you know, they've stopped making their most competitive products available through intermediaries, and so one major lender is offering remortgages at 4.99% fixed for two years with a fee of £1690 plus an account fee of £295. People will flock to it in their droves because the payment amount is lower, clearly, than products with a higher rate. But in the absence of an adviser, astonishingly few of them will pause to consider that their mortgage has to be a certain minimum size before it becomes worth paying that fee *when viewed over the long term*. In the short term it's wonderful for the lender, because the rate of return of a large upfront fee on a small mortgage swells the bottom line wonderfully. And the bank clerk has another tick in another box. And in two years, the borrower will pay another set of fees and repeat the mistake.

All Hail the FSA, and the sales targeting of lenders. Between them, they'll screw anyone, and everyone.

The Great Simpleton said...


You're right, its a long time since I had a mortgage and even longer since I applied for one.

I wouldn't trust an advisor either and always did my own leg work to compare offers.

The guy was a nuisance on the golf course as well as an idiot.