Coventry makes changes to intermediary range

Coventry Intermediaries is to make changes to its mortgage range from Friday 2 May it was announced today. Among Coventry’s main residential range, trackers with a 25% deposit are priced at 6.25%, while those lending 90% LTV are available for 6.45%.

Five-year fixed rates with a 75% LTV are available from 6.15%, while 90% LTV products are 6.35% with a total fee of £999.

The buy-to-let range from Godiva has seen the introduction of a three-year fixed rate product lending up to 65% with a rate of 6.59% and total fees of £1250.

A new self-cert product has also been added to the Godiva range, priced at 6.39% and lending up to 65% LTV for a £1999 fee.

The near prime full status three-year fixed rate is now priced at 6.75% for 65% LTV with a fee of £999.

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FSA confusion over TCF and direct deals

The FSA appears to be uncertain about the Treating Customers Fairly (TCF) implications of mortgage brokers no longer being able to access the best deals in the marketplace. Numerous brokers have contacted IFAonline.co.uk because of confusion over regulatory requirements cause by lenders withdrawing from the intermediary market.

As many lenders have either withdrawn their intermediary ranges or hiked prices on products, many brokers are unsure of how they can comply with Treating Customers Fairly (TCF) rules in light of the changing market.

The changes mean many direct deals, sold through bank and building society branches, are now the most competitive in the market. However, brokers are unsure whether to send their clients to these lenders as they cannot produce a key facts indicator (KFI), which is required to advise on mortgage products.

Once concerned broker, Mike Abbot from Sable Property Limited, says: “As a regulated whole of market broker the FSA’s MCOB Rules require us to provide a compliant KFI when recommending a deal to a client. Direct lenders will not provide us with these and therefore we cannot recommend these products.

“In the same vein if we happen to know that a remortgage clients’ own lender is offering a better deal than that available elsewhere again we cannot recommend it as the lender won’t supply us with a KFI.”

Leslie Titcomb, director of Small Firms and Contact and Retail Intermediaries Sector Leader at the FSA, says the regulator is currently looking into the issue as concerns have been raised by a number of brokers.

Today, a spokesman for the FSA, told IFAonline.co.uk that brokers were not obliged by FSA rules to inform their clients of better high street deals and simply had to make them aware of the best deal available to the individual broker.

However, Phil Castle of Financial Escape, argues that a broker faces a conundrum as he is also bound by agency law, which conflicts with the FSA’s own rules.

“As an agent of the client, a broker must act in the best interests of that client, regardless of what the FSA says,” he explains.

The FSA admits the issue of producing a KFI made it impossible for brokers to discuss direct products with their clients.

Castle says lenders are not acting in the best interests of customers as they are preventing them from seeking independent advice by not allowing brokers to access a KFI, whether they receive a proc fee or not.

He also criticised the BBA for saying advice should always be sought for pension and investment products. This is despite its members preventing people seeking advice on a direct mortgage product, which Castle says is often the most important financial product a consumer ever buys.

Titcomb says the FSA is currently formulating a response to the issue of TCF and direct deals which is expected in the next few days.

House prices may need to fall 30%

A Monetary Policy Committee member has warned house prices may need to fall 30% to restore a more sustainable house price-to-earnings ratio.

Prof David Blanchflower issued the warning last night during a speech at the Royal Society in Edinburgh. Blanchflower says in his speech that property in Britain is overpriced by 30%.

He warns that unless interest rates are cut, a 30% decline in house prices would be needed to maintain a more realistic house price-to-earnings ratio.

He adds: “In my view a correction of approximately one third in house prices does not seem implausible in the UK over a period of two or three years. I am not suggesting that such a drop will necessarily occur, but it may.

“My biggest concern right now is that the credit crisis will trigger a rapid downward spiral in activity. I believe that we face a real risk that the UK may fall into recession, and aggressive action is required to prevent this from occuring.”

Banks and FSA disagree over advice

The British Bankers’ Association (BBA) believes that new proposals from the FSA for providing financial advice could prove costly for customers.

The BBA disagrees with the FSA’s view, and believes that any proposals to curtail or ban tied advice, where a bank advises only on the range of products it provides, would force customers to choose between paying a fee for advice and using a non-advised service. It claims this could have a significant impact on customers’ access to mass-market, cost-effective, key financial products.

The BBA has vowed to take its case to the FSA and wants to see whether the FSA’s concerns on consumers’ perception of sales and advice can be addressed through improved disclosure.

Angela Knight, chief executive of the BBA said: “Many customers have a good idea of what they need and want to get advice and buy their financial products from a brand they know and trust. The FSA proposals could remove this option, leaving individuals with the choice of either more expensive options or buying without advice.

“Of course we are in favour of improved clarity for consumers, but this shouldn’t come at the expense of consumer access to trusted and cost effective advice.

“The FSA should think very carefully before introducing changes that may restrict customer access to advice, which is contrary to one of the key objectives of the review.”

More property sales are falling through

Property sellers face a one in two chance of their sale falling through, according to research from home purchase company Quickmovenow.com.

Its newly released ‘Fall Through Index’ (FTI) shows that fall-through rates have doubled since their records began in 2006.

Hywel Luke, managing director, Quickmovenow.com said: “This gives us a real indication of how market conditions are affecting home owners looking to sell their property and, as with most market indicators, the FTI outlook for the near future is poor.

“Back in 2006 and early 2007 the market was extremely competitive. Buyers would do anything to secure a property and were able to stretch mortgagees to the limit as well as get easy access to temporary bridging finance. Since August 2007 the market has hardened which has led to sales taking longer to agree and an increasing ratio of collapsed chains.”

Most sales involve a chain of interdependent transactions, which multiplies the chances of something going wrong as problems anywhere in the chain can block four or five dependent moves.

He added: “For many sellers missed completions often result in onward purchases being lost. Sellers will also lose out financially, with cost sunk into solicitors, estate agents, HIPs, survey and mortgage fees, often in excess of £2000. They will also remain exposed to the changing market conditions, which as it stands, could see their house price actually fall as they may have to wait a further three – nine months to secure another buyer.”

Safe Home Income Plans say equity release more resilient than mainstream market

SHIP (Safe Home Income Plans) has published equity release business results for the first quarter of this year.

Overall sales volumes are slightly down, but SHIP believes this to be only a short term slip caused by the initial shock to consumers of the credit crunch. After the downturn in demand late last year, reflected in the lower number of completions in Q1 this year, providers and intermediaries are reporting a marked upturn in consumer demand for equity release.

In the first quarter of 2008, the number of equity release plans sold fell by 13% year on year, from 6,785 down to 5,892 (£293.9 million down to £242.7 million paid out). Given that equity release cases take two to three months to complete, this fall reflects lower demand in the final quarter of last year when the credit crunch and events at Northern Rock had its biggest impact on consumer behaviour.

The trend towards flexible drawdown products continued a pace with these products representing 55% of equity release plans sold compared to 40% of cases in Q1 2007. In Q1 this year – on top of the £242.7 million paid out – a further £17.4 million was drawn down from plans sold in previous quarters.

In terms of distribution, volumes sold through intermediaries held up relatively well, with a decline of only 6% compared to the first quarter last year, down from 3,925 cases to 3,682 (£197.6 million down to £180.3 million paid out). However, sales through direct channels reduced sharply with a reduction in value of 35%, down from 2,860 cases to 2,210 (£96.3 million down to £62.4 million) due principally to the difficulties experienced by one of the major direct players.

Equity release product providers and intermediaries reported a relatively slow December and January, but are saying that the level of inquiries since has improved markedly.

Andrea Rozario, director general of SHIP said: “Given the changes that have occurred in the wider mortgage market over the last six months, equity release business volumes have faired very well, and have certainly been more resilient than their counterparts in the mainstream mortgage market. This is a pointer to the increased focus lenders and intermediaries will place on equity release going forward as the mainstream mortgage market struggles and consumer demand for equity release increases.

“Looking forward, the fundamental drivers of demand for equity release are as robust as ever – an ageing population, a decline in pension provision and a large proportion of people’s wealth tied up in their property. Equity release is set for significant long term growth whatever the prospects may be for the mainstream mortgage market.”

Cable backs King over inflation measurement

Following comments from the Governor of the Bank of England that he would like to see house prices included in the CPI measure of inflation, Liberal Democrat Shadow Chancellor, Vince Cable has supported the idea.

Mervyn King told a Commons select committee that a change in how CPI was measured would be “desirable”, adding, “I would like to see CPI include house prices in some form.”

Cable said: “Mervyn King is clearly right. The Liberal Democrats have long called for house prices to be included in the Bank’s measurement of inflation.

“This will add further pressure on the Government to use a target of inflation that is actually representative of the cost of living.

“With inflation forecast to hit 3% later this year, the Bank’s room for lowering interest rates is extremely limited.

“Putting house prices in the inflation target would not only relieve current inflationary concerns, but also ensure that in the future we do not see credit remain artificially cheap while house prices spiral out of control.”