July 22 – Delays and Obfuscation

Brokers are in the middle of a torrid time caused by product withdrawals by lenders.  As interest rates are rising, those lenders slow to adjust can quickly be flooded with business they are not designed to cope with.  We hear stories of lenders having to withdraw as their back offices are in meltdown, which leads to a further deluge if brokers can beat the guillotine.  Others are looking over their shoulders as their funders look for better returns, needing to amend product rates quickly.  Whilst base rate increases impact those on SVR, it is the more volatile swaps market that is now driving some hefty new business rate increases

This has led to brokers having to re-work cases a number of times to secure an offer from a lender.  For clarity, this is not the fault of our BDM’s or those who run the intermediary business. They are genuinely on the brokers’ side.  Others in lenders need to step up and manage product, operations and distribution better.  But that is just the start of the story.  Of particular issue now, are the delays in conveyancing.  Average times from offer to completion have been slipping outwards since the start of Covid lockdowns and even more so after the stamp duty reductions.  Where consumers then breach their offer time limit, they are left in an impossible position.  However, some lenders are more sympathetic than others and appear to have the capacity to extend offers more than others.

The 2020/21 stamp duty benefits left those in the world of conveyancing and removals under intense pressure and the stress levels faced during 2021 were too much for many.  As many skilled staff left their sector, it has been a real struggle in the UK labour market to replace them.  However, the fate of some conveyancers is made worse by the contracts they have signed with lenders to support products with “free legals”.  These are now at a fee from the lender that is loss making for the conveyancer given revised market recruitment and salary costs.  The difficulty in getting staff means that many pipelines are clogged due to the issues in firms.  This serves no-one well.

For as long as AMI has been independent, we have advised against free valuations and conveyancing.  We think that it devalues other parts of the professional house buying and selling process.  It commoditises something that consumers should see as providing real benefit and value.  Cashback is a much better alternative together combined with more clarity that the valuation for mortgage purposes is for the lender only and neither belongs to nor can be relied on by the purchaser.

As we march towards the new world of Consumer Duty it is likely that this will introduce the new requirement of the need to avoid casing “foreseeable harm”.  This should cause all lenders to look carefully at their product and service offerings and when put alongside the new cross-cutting rules in consumer awareness and understanding, cause a reflection on what is offered.  The lender will need to be more certain that any third party they are partnered with as part of the supporting service, such as conveyancing have the capacity and ability to deliver in a timely and effective manner.

More importantly might be the challenge that lenders could face in offering out a product that is withdrawn with little or no notice, possibly open to challenge as not being fair marketing.  Finally, of key importance in the debates over implementation of consumer duty will be where the boundaries are drawn.  It will be for the lender to set out their own view of who their product is targeted at, and how their products delivers fair value.  It will be for the broker firm to assess their own value proposition and decide if they believe in the lenders overall value proposition.

What is to be hoped is that the FCA make it clear that these structures; operate at firm level; traversing the whole product set and that the conduct rules in individual source books are the main driver of product advice for individual consumers.

Robert Sinclair
AMI, June 2022