Advisers fear relations with lenders will worsen

Brokers believe relations between themselves and mortgage lenders will become increasingly frayed in the coming months and years, according to Leadbay.

At an event for brokers hosted by Leadbay, they also said many of them are considering changing their business models to a fee-charging structure as lenders move away from dealing directly with intermediaries.

Those present at the event felt the priority for lenders going forward is to control their distribution channels.

Leadbay says lenders are likely to focus on brokers that can supply good quality business rather than quantity of business. Brokers who wish to distribute for lenders will need to ensure they can secure high quality clients.

Brokers said they felt they are coming under pressure to move to a fee-based business model, but realised the potential pitfalls of trying to set fees at a price which made remortgaging worthile for customers, but also profitable for the adviser.

Grant Stevens, managing director of Leadbay, comments: “Quality of business is going to be increasingly important as the market moves forward.

“As it becomes ever more difficult to place mortgage business, it becomes urgent that advisers find a cost effective source of good quality new leads in order to maintain their income and keep them in business.”

It seems likely that rivalry between brokers and lenders is likely to increase in the coming year as both compete to convince customers of the value their service has to offer.

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Split advice and sales to boost trust, consumers say

A new report from the Association of Independent Financial Advisers (AIFA) suggests that consumer trust in financial services institutions could be dramatically increased if there was a clearer demarcation between financial sales and advice.

Research conducted on AIFA’s behalf by YouGov found that 8 in 10 people believe that knowing whether you are being sold a product or advised on one is important to build the level of trust in banks, building societies, life companies, IFAs and other financial organisations. AIFA firmly believes that increased trust would lead to more people re-engaging with financial organisations and subsequently saving and investing for their future.

AIFA will be sending its new report – ‘Consumer Trust in Financial Services’ – to the Financial Services Authority (FSA) and the Treasury urging them to make the distinction between sales and advice clear in the Retail Distribution Review (RDR) statement expected in October.

Chris Cummings, director general of AIFA, said: “Consumers deserve to know who’s on their side and acting in their best interests, and who’s just there to sell them a product. We believe that the benefits to the consumer in offering absolute clarity of whether a firm is ‘agent of the client’ or otherwise will go a long way to restoring trust in the sector. We call on the Government and regulator to make the distinction crystal clear.”

74% of adults agreed or strongly agreed that making consumers aware of whether they were being sold a product or advised to buy one was a good idea, with only 5% disagreeing.

When considering purchasing a product, 60% of people would be likely to purchase products with ‘product information’ only and take responsibility for the buying decision.

80% of respondents who took out a financial product in the past three years with an IFA, were confident they considered their personal circumstances above anything else (compares to 60% of those who took out a financial product in the past three years with banks).

86% of adults who had dealings with IFAs in the past three years rated their services as fairly good or extremely good.

78% of those questioned trusted IFAs to treat them fairly (compares to 73% for banks).

12% of those consumers who had not engaged with a FSI in the previous three years directly attributed this to a lack of trust in the sector.

AIFA’s research follows findings from IFA Promotion (IFAP) showing a 50% increase in the number of people seeking independent financial advice and figures from the Council of Mortgage Lenders (CML) showing that the number of first time buyers using an intermediary has risen to 82.5% in the first quarter of 2008.

Cummings added: “As the IFAP and CML statistics show, consumer demand for IFAs tends to increase during turbulent market conditions. But there’s still a large percentage of consumers who don’t understand the difference between different types of sales and advice. The RDR offers the perfect opportunity to encourage re-engagement with the industry and improve their financial well being.”

Abbey cuts rates and offers deals up to £5m

From 1 August, Abbey is reducing the rates on its two and three-year fixed rate and tracker deals by up to 0.15%. In the core 75% LTV range, two year fixes now start at 6.19% and three-year fixes, 6.29% – both with £995 fee.

Abbey has also cut rates on its broker special at 75% LTV, bringing it to 5.69% with a £1,999 fee. For customers with a 40% deposit, there is a 5.59% deal with £1,999 fee available through brokers.

The Santander-owned lender is also offering 70% LTV products in the range – a two-year fix at 5.99% with £1,495 fee and a three-year fix at 5.99% with £1,695 fee.

Abbey has also introduced two new large loan products to the range for customers wanting to borrow between £550,000 and £5 million. These products require a deposit of 40% and start at 6.34% for a three-year tracker and 6.79% for a three-year fixed rate deal.

Phil Cliff, Abbey’s director of mortgages, said: “On Tuesday, Abbey revealed its exceptional mortgage performance for the first half of the year. Throughout the credit crunch we have been providing consistently competitive deals and this is further demonstrated by our rate cuts and new mortgage deals launching on Friday.

“The two large loan products we’re introducing look particularly competitive in the large loan space as they go up to £5 million, compared to many of our competitors who lend up to £1 million. They also have a comparatively low fee for a large loan at £995, whereas many of our competitors ask for a percentage fee which can end up being in the thousands.”

Rents begin to stabilise

Buy-to-let yields remained stable at 6.4% for the second consecutive month in June, according to Paragon Mortgages’ latest Buy-to-Let Index.

Average UK rents, which had been rising rapidly, have stabilised just short of £1,000 a month, and remain 9.3% higher than a year ago.

Regions achieving the highest yields in June were Wales (7.6%), the North (7.4%) and the North West (7.3%).

Over the coming months, the buy-to-let market will be a vital source of stability in an uncertain housing market. Returns remain attractive and strong tenant demand encourages landlords to retain property, whilst also looking for opportunistic purchases. The average portfolio gearing is less than 40% – giving landlords plenty of room to free up equity for further investment.

John Heron, managing director of Paragon Mortgages, said: ‘For the vast majority of landlords, a slow housing market is nothing new. They recognise the counter-cyclical nature of buy-to-let and many landlords have held property through previous housing cycles. Falling prices are spooking first-time buyers and they are delaying house purchase, with tenant demand at high levels as a result.”

He added: “During the downturn of the early 1990s we witnessed mass possessions because there was little alternative to house purchase and young buyers had borrowed above their means. Today’s modern and vibrant private rented sector provides people with a viable alternative to owner occupation and buy-to-let provides housing for young people who would otherwise have little choice but to buy and be financially stretched.”

Swap rates providing glimmer of hope?

Moneyfacts.co.uk is cliaming there is a “faint glimmer of hope” that the fixed rate mortgage market is returning to some sort of normality. It says that new mortgage borrowers are now finally benefiting from this, as lenders pass on a string of welcome interest rate cuts on their popular fixed rate deals.

Darren Cook from Moneyfacts.co.uk, said: “We used a key barometer of the average two-year fixed rate over the past few months to analyse the trends of the overall fixed rate deals against the volatility of the swap market, the borrowing fixed rates used between financial institutions.

“The average two year fixed rate peaked at 7.08% on 11 July ’08, its highest in over a decade after swap rates also peaked at 6.52% on 16 June ’08, reflecting the lag time for swap rates to reach the mortgage market is normally around two to three weeks.”

Cook notes that several lenders, such as Halifax, C&G, Nationwide BS and HSBC have trimmed their mortgage rates over the past two weeks, which has resulted in the average two year fixed rate dropping to the current 6.95%. Halifax, C & G, Abbey, Nationwide and HSBC , which supply the majority of overall mortgage lending, have a collective average two year fixed rate currently at 6.76%.

He added: “It is encouraging that, at long last, lenders are responding to the easing in wholesale borrowing costs and passing a discount on to the consumer. There is a sense that competition is finally returning to the fixed rate mortgage market, which will benefit the borrower.

“Two year swap rates are continuing to fall and yesterday’s closing price of 5.74% is the lowest since mid May of this year, when the overall average two year fixed rate was 6.63%. If these downward trends continue unabated, we will see further fixed rate cuts by our top high street lenders in weeks to come, which just might be that glimmer of hope that we are all endlessly seeking.”

1300 to go from the Rock

Northern Rock’s collective consultation with Unite the union and other employee representatives has concluded, with expected job losses to total 1300.

The workforce is currently being informed of which jobs are at risk of redundancy under the company’s restructuring plan. Those staff at risk have entered the individual consultation process, which is expected to last up to 30 days.

While Northern Rock expects to ultimately preserve a workforce of around 4,000 staff, the number of jobs lost through redundancy is expected to be around 1,300.

Previous announcements have indicated that the workforce was likely to be reduced by around 2,000 jobs by 2011, with the majority leaving the company this year. It is envisaged that any further reduction in the workforce will be achieved through natural staff turnover in the coming years.

Around 500 of the job losses announced will be achieved through voluntary redundancy. The balance of around 800 jobs will be made compulsorily redundant. The number of compulsory redundancies is expected to be limited to this level through a process of internal redeployment.

The lender has stated that, where possible, existing members of staff in roles that have been identified as being at risk of redundancy will be given the opportunity to remain with the company by moving to a new role within the restructured business.

Executive chairman Ron Sandler said: “Confirming job losses is never easy but our staff have been kept well informed and the need to contract the size of the Company is well understood. This remains a very tough time for our staff but the restructure of the Company is nearing completion and we are now in the final phase of this difficult process.

“We have worked hard with Unite, and other employee representatives, to minimise the total number of job losses and in particular, to limit the number of compulsory redundancies to potentially around 800 jobs. We have been able to achieve around 500 of the job losses by voluntary means.”

LVBS fined £840,000 by FSA over PPI

The FSA has fined Liverpool Victoria Banking Services Limited (LVBS) £840,000 for “serious failings” in the sale of single premium Payment Protection Insurance (PPI).

The penalty was imposed for failings in relation to PPI offered to customers who telephoned LVBS seeking unsecured personal loans between 14 January 2005 and 8 August 2007.

In 97 sales calls reviewed, the FSA found over 60% to be non-compliant.

When customers rang LVBS to apply for a personal loan, LVBS added the cost of PPI to the quotation without the customer asking for it. If customers realised they did not have to buy the cover and objected to it, LVBS put pressure on them to take the PPI. When speaking to customers LVBS did not explain that the cost of the single premium PPI was added to the loan and that as a result customers paid additional interest on the PPI premium for the life of the loan. LVBS also provided inadequate information to its telephone customers about the features, exclusions and limitations of PPI and often provided information that was unclear, unfair or misleading.

FSA director of enforcement Margaret Cole said: “When customers phone for a quote, it is totally unacceptable for firms to add on the cost of insurance which the customer has not asked for. Many customers make their decisions when speaking to sales staff. If those conversations are unclear or misleading it will be no defence for firms to say that full details were included in paperwork which customers received later. We have made it abundantly clear that firms must ensure their PPI sales processes are up to the required standards and must change their behaviour where necessary.

“The LVBS sales process was flawed in its design. The firm has stopped all sales of PPI and is now proposing a comprehensive programme to contact its customers and pay them compensation where appropriate. The FSA expects firms to treat customers fairly, particularly when failings have been identified. This proposal for remedial action sets an example for other firms to follow.”

As part of the redress package agreed by LVBS, the interest paid on the PPI premium will be refunded automatically, without the customers having to write to the firm and make a claim. The firm will be writing to its PPI customers asking them to review the terms of their PPI policy and offering to pay full redress where appropriate. LVBS agreed to extend the scope of its redress proposals to include a review of all PPI offered via telephone, internet or post between 14 January 2005 and 31 January 2008. This remedial action has been taken into account by the FSA and has significantly reduced the level of penalty which would otherwise have been imposed on the firm.

In addition, LVBS qualified for a 30% reduction in penalty by settling at an early stage of the FSA’s investigation. Were it not for this discount, the FSA would have sought to impose a financial penalty of £1.2 million.

The FSA has previously fined seven firms over poor PPI selling practices: HFC Bank £1.085 million, Regency Mortgage Corporation Limited £56,000, Loans.co.uk £455,000, Redcats (Brands) Limited £270,000, GE Capital Bank £610,000, Capital One Bank (Europe) Plc £175,000 and Land of Leather £210,000 – and has imposed a public censure on Eastern Western Motor Group Limited and Cathedral Motor Company Limited. Three other cases have been concluded where problems relating to PPI also featured – Capital Mortgage Connections Limited £17,500, Home and County Mortgages Limited £52,500 and Hadenglen Home Finance Plc (£133,000 for the firm and £49,000 for its chief executive).