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'Are banks killing the mortgage broker market forever?' blog discussion

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  • Savvylady
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    There are a couple of obvious reasons why lenders increasingly offer better priced mortgages through direct channels:

    1. The procuration fees paid to brokers - these can be as high as 0.5%. These are not incurred by lenders distributing through direct channels; and it's not relevant to say that in direct cases, lenders have to cover the costs of branches instead, since they have to have the branches anyway to service savers - especially in this climate where the competition for savings is so cut throat - even if they don't lend a single penny through them.

    2. Risk and business quality - it is a fact that the levels of arrears on introduced mortgage business are higher than on direct business. In a climate where the money available for lending is in extremely short supply, and where arrears levels and associated losses have severely harmed the profitability of lenders, then those lenders would rather use their scarce funding through their direct channels, where they have much greater control over the quality of business, and a proven reduced likelihood of arrears occuring. The lower price reflects the lower risk.
  • Wakey2008
    Wakey2008 Posts: 149 Forumite
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    Savvylady wrote: »
    There are a couple of obvious reasons why lenders increasingly offer better priced mortgages through direct channels:

    1. The procuration fees paid to brokers - these can be as high as 0.5%. These are not incurred by lenders distributing through direct channels; and it's not relevant to say that in direct cases, lenders have to cover the costs of branches instead, since they have to have the branches anyway to service savers - especially in this climate where the competition for savings is so cut throat - even if they don't lend a single penny through them.

    2. Risk and business quality - it is a fact that the levels of arrears on introduced mortgage business are higher than on direct business. In a climate where the money available for lending is in extremely short supply, and where arrears levels and associated losses have severely harmed the profitability of lenders, then those lenders would rather use their scarce funding through their direct channels, where they have much greater control over the quality of business, and a proven reduced likelihood of arrears occuring. The lower price reflects the lower risk.

    This is spot on.
    I am a Mortgage Adviser and Freelance Journalist
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • Wh05apk
    Wh05apk Posts: 2,938 Forumite
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    Wakey2008 wrote: »
    This is spot on.


    :wall:

    "and it's not relevant to say that in direct cases, lenders have to cover the costs of branches instead, since they have to have the branches anyway to service savers"

    Its a business, every cost has to be accounted for, advsiors salaries/holidays/sick pay/training/supervision/back office support/phone calls/electricity. Why are a lot of banks cutting down on the number of advisors? because they are so expensive for the volume they produce, yes some produce large volumes (I used to when I was in branch) but there is a lot of dead wood, producing very little volume, it is far more cost effective for lenders to lend through intermediaries, that way they can control the lending, turning volumes on and off as they need to.

    Quality of submissions is purely down to underwriting criteria, unless you are saying that broker apps are fraudulent? I'm sure some are, just as some branch cases are, and direct telephone/internet cases are.
    I am a mortgage adviser.
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • MiserlyMartin
    MiserlyMartin Posts: 2,241 Forumite
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    The market has transformed since 1996, for the worse it seems. At least in 1996 house prices were sensible. Multiples were 2.5 joint income, no 100% mortgages and no liar loans and BTL mortgages.

    In 2002 I saw an advisor in an estate agency who wanted to put down on the application that I earned 10k more than I did. This has been rife! No wonder prices boomed and fell. Not enough/no regulation, an unfit for purpose FSA and Brown alsleep on the job then later 'I saved the world'.
  • chinup_3
    chinup_3 Posts: 180 Forumite
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    I though martin himself had been telling the public to go to a fee-free broker such as charcoal and a 'london + something ' one for a good while now. ie get the info for free, including picking a brokers brains, and then get fee-free service. How is a broker going to earn a living when proc' fees have been plumetting for ages ? recommend the best proc' fee deal surely, rather than best-value to the client and earn < minimum wage by the time the client has lied 3 times and not sent paperwork back etc etc.
    remember always -'' life shrinks or expands in proportion to ones courage''
  • vbennett18
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    Having read the first time buyer mortgage advice guide (which did contain alot of useful information) I rang London and Country for mortgage advice and to help me find the best mortgage. On initial phone call they were very helpful and enthusiastic, and said they would phone me back later in the day with the mortgage deals they'd found, no phone call. I phoned back the next day, having found a property and wanting to put an offer on, straight to answer phone x2, no call back. phoned the next day got hold of my advisor who said he was still waiting to hear back from a mortgage company. 3 days later, and I've still had no response, I'll phone again tomorrow, but since the initial phone call, my advisor seems to be getting more and more unhelpful, having looked around at reviews online, since, this seems to be a very common experience.
  • Wh05apk
    Wh05apk Posts: 2,938 Forumite
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    Vbennett18,

    You have given them a chance, they should be keeping you informed, I would suggest you find yourself another broker who "wants" your business.

    What are they doing for you? have they submitted an agreement in principle and that is what they are waiting for, or just coming back to you with some options?
    I am a mortgage adviser.
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • cplatten
    cplatten Posts: 47 Forumite
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    The market has transformed since 1996, for the worse it seems. At least in 1996 house prices were sensible. Multiples were 2.5 joint income, no 100% mortgages and no liar loans and BTL mortgages.

    In 2002 I saw an advisor in an estate agency who wanted to put down on the application that I earned 10k more than I did. This has been rife! No wonder prices boomed and fell. Not enough/no regulation, an unfit for purpose FSA and Brown alsleep on the job then later 'I saved the world'.

    I really dislike the term "liar loans". We took a self-certified loan back in 2003 and think they got a bad press. Our financial adviser looked at our financial situation and knew we could afford it.

    Normal mortgages wouldn't take into account that we had rental income coming in from my old flat - we knew that that would offset the larger mortgage but building societies wouldn't count that in. Therefore, we could only self-certify our income which we knew was what we were really receiving - not just what a P60 showed.

    A 10k boost in your income would have only been a miniscule increase in mortgage payment over the term of a mortgage but could have been the difference between getting on the housing ladder or not.

    I am NOT saying that I agree with the whole situation. The Labour government were asleep on the job. Because we borrowed higher multiples than we were allowed back when I first entered the property market in 1992 house prices rose and rose.

    Borrowing the higher multiples became the only way to keep up and move up the ladder. But then interest rates have been so low - who is really to say that 3x your income is correct anymore? When I was given 3.5x my income in 1992 the interest rate was 10% so why shouldn't we have higher income multiples to reflect the lower interest rates? Mortgage payments are a lower percentage of people's outgoings than they were in the past. In many areas of the country house prices are 10x the average wage.

    From your "liar loans" situation we have now gone too far the other way. Banks are back to offering 3x income and what does that buy?! It means nobody can move anywhere.

    Self-certification worked for us. We still have an income multiple far higher than anybody would think sensible but it has never been a problem because we don't have the bills other people have. We don't have children and drive a 10 year old car but desperately wanted a decent house in London and knew that a self-certified mortgage was the only way.
  • JimmyTheWig
    JimmyTheWig Posts: 12,199 Forumite
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    cplatten wrote: »
    But then interest rates have been so low - who is really to say that 3x your income is correct anymore? When I was given 3.5x my income in 1992 the interest rate was 10% so why shouldn't we have higher income multiples to reflect the lower interest rates?
    But what if (when?) interest rates go back up again?
  • cplatten
    cplatten Posts: 47 Forumite
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    But what if (when?) interest rates go back up again?

    I know that is always a worry...but look how many years they have been low? We have had rough times but we have had good times, too and that is the cyclical nature of economies and we just have to ride it.

    A good IFA like mine not only can look at mortgage products but also, because he primarily deals in large investment funds and pensions, take a long view on interest rates. We talk about the bigger picture and our long term plans for the future and where our mortgage fits into that.

    When you take a mortgage it helps to calculate in what the payments would be if the interest rate rises to x amount and then decide if you would still be able to afford it. If not, you can think of what the alternatives might be.

    Of course anything can happen - nobody ever "expects the Spanish Inquisition"! (Or mortgage rates rising to 16%) so we all have to accept an element of risk.

    But that is life in general and there are other websites like housepricecrash where so many people pride themselves on never entering the housing bubble because of the risk and living in a council flat all their lives!
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