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'Are banks killing the mortgage broker market forever?' blog discussion
edited 8 July 2010 at 4:23PM
in Martin's blogs & appearances & MoneySavingExpert in the news
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Former_MSE_Penelope
Former MSE 536 Posts
This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.
Read Martin's "Are banks killing the mortgage broker market forever?" Blog.
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Ignoring credit scoring (i.e. this would only work for people with good credit histories) could you not have some sort of tool where a user would enter their income, house price and mortgage amount and then be told the best deals across each "type" of mortgage (e.g. 2yr fix, 3yr fix, 5yr fix, 2yr discount, etc).
Surely there is a reasonably accurate answer to a question along the lines of "What's the best 5 year fix for someone with low income multiple and low LTV?" I don't know what that answer is, but there must _be_ an answer, surely?
I appreciate that there is small-print type differences - e.g. overpayments, early repayment charges, etc. But if the tool gave the theoretical top 3 in each category then the user could look them up for the detail?
Remember in the 80s and 90s when all the regulators talked about was bancassurance, where they effectively wanted rid of the small IFA/ broker, and would prefer you to go to your bank as they were easier to regulate. Well the banks got greedy..or should I say greedier, and certainly alienated a lot of people with expensive product, mis-selling and often below average fund performance. People saw through the 'tied' aspect..so the regulators thought again and came up with the multi tie, just to muddy the waters a bit more..but I digress.
Yes, the banks will effectively 'buy' this business with special deals, but it is not in their nature to provide value for money in the longer term, so all is not lost for the independent broker, as when the deal runs out, thats when a good broker can come into his own. It doesn't get any easier though does it.
Seronera (20 years in financial services...but 10 years since i got out and went to do something else)
Some brokers will offer a full search including direct deals but the extra research and likely no business at end, means a fee is needed ( maybe offset from commissions from any mortgage / insurances ?)
This means fee free broker may not be best route, unless consumer is certain they can do own research as well.
- but are the financial savvy already brainwashed into - free advice , and the less savvy/ lower end of market caught in a trap where they pay ( if fees / sale of poor value insurance) for inferior advice.
Also leads to trust issue ... will the adviser do as promised.
One major telephone adviser claims to offer all deals - but systems ( online and telephone script) seem to be bias towards " products they can process"
Having just completed a degree, with an element of my last peice of work around this issue, I'm currently considering starting a PHD that covers this ( and other consumer issues in financial services ) but need to see if any suitable funding is around or at least some teaching hours
Up until April 2008, I always used my long-standing, trusted IFA. He had contacts within the industry and I felt secure knowing that I didn't have to do comparisons between lenders, as that was what he was getting his commission for. However, for the mortgage we wanted in 2008, my IFA no longer could find a lender who would lend to us, despite combing the market. I have to say that we did want a high multiple, but we have a high LTV, an immaculate credit record, a secure income and no other debts at all.
In the end, the only mortgage available to us was sold via an estate agency - something I would never have considered previously - but we wouldn't have been able to move otherwise.
When that deal expired in May this year, I spoke to my IFA again. Once again, he could not find anyone that wanted our buisness and told us that unless we could pay down more of the mortgage (ha ha!) we would have to stay with our existing lender. However, our existing lender was offering us various products, and our IFA looked over the options for us and gave us his professional advice as to which was the best deal.
I offered to pay for this advice, as I valued it so much, and he was no longer able to gain commision from my mortgage deal. However, he declined payment because of our long-standing relationship and said that actually he dealt with so few mortgage deals nowadays that he didn't mind helping me out. His firm now makes all their money via investments and pensions.
The truth is that it isn't free advice and you can get a better deal by going direct, is there no happy middle ground where people can pay £50 for a proper mortgage consultant to show them the best deal for them, either direct or not.
The main problem is that most peoples first and only experience of a MA is in a large chain EA, they give a very hard sell and are very pushy, they only check out a few mortgage companies and give a spiel about getting you a better rate than you can get yourself, which is a lie. On the other hand the person at the HSBC wasn't at all pushy, was happy to sit and talk to us about our mortgage options without being pushy at all, if he was on commission it wasn't likely to be the main bulk of his income and he was happy to spend a relaxed time with us discussing the various deals.
I think if people can do their own legwork and check some websites then they will, if you cannot be bothered or have circumstances that some expert advice might help then see a real MA.
R
It really isn't as simple as that.
I first tried my real MA, who couldn't find anyone willing to lend us the income multiple we wanted (despite having been paying that multiple fine for the past 5 years!)
I then tried a high street bank (HSBC) and got a 16 year old novice who got out a calculator and worked out what 3x our income came to and said they would lend us that!!! This was while sitting on Tottenham Court Road where the average 2 bed flat is £400k. It was like being back in 1991 when the recession made house prices affordable and I bought my first London flat with 3x a single income. It was totally unrealistic for today.
It may be considered risky lending more than 3x income but there is now a case of shutting the door after the horse has bolted. The average house price is 10x the average wage - who can buy anything with that? And house prices have not fallen low enough or wages risen high enough to correct the balance.
The EA was the only place we were even offered a mortgage and it was with Santander. I found out later that Santander have mopped up customers in the last few years because they have looked at the affordability criteria again when assessing a mortgage and not just pulled out a calculator.
I'm not at all convinced that there is any loss here. On both occasions when I have taken out a mortgage I have gone to the "independent financial adviser" recommended by the estate agent, and on both occasions I have ended up worse off than if I had simply read a few banks' brochures and asked around for a bit of advice. The first time I had read in several places that a repayment mortgage was almost always the best option, but was bamboozled by the "adviser" into taking an interest only mortgage along with an investment (on which of course he took a big cut). The second time I had already researched the best mortgage deals so I knew what I was getting there, but the adviser insisted that I had to sign direct debit forms for several insurance policies in order for him to give quotes - and then went ahead and took out all those policies against my instructions, and ignored every phone call and letter telling him to cancel them.
Sorry Martin, but I don't think anyone will be worse off. Those people gullible enough to take a salesman's word will be sold the wrong products as before, and those who do their own research and ignore the hard sell will be able to pick the product they want, just as at present.
While I agree with what you say, not everyone is as experienced or financially savvy as you now are. Unfortunately, you learnt the hard way, but that is even more why we need proper, Independent Financial Advisers who can not only help us with the right mortgage product, but look at how it fits into our overall financial planning.
It is difficult to do our own research (and I have a business / economics degree) because of the sheer number of offers out there, of varying lengths, varying interest rates and varying fees. Even if you do your own research and find a great deal, in this tight market very few buyers seem to manage to jump through the lender's hoops anyway.
I, for one, do not think all the industry are charlatans. I needed help in making the right decisions with 3 properties through 18 years up the housing ladder.
Most of the IFAs I know have pulled out of mortgages. They employ mortgage advisers instead. However, what you describe is the common business model of a long standing client/IFA relationship.