James Daley: Our deal or no deal, say tricky banks
Saturday 10 May 2008
Britain's banks and building societies have been up to their old tricks over the past weeks, desperately trying to scrape together a few extra pennies to bolster their ailing balance sheets.
Historically, such exercises have involved some new opaque charging structure, with which banks have hoped to ensnare a few unsuspecting customers. But their latest ruse has taken a different tack. In a bid to try to increase their margins, a growing number of mortgage lenders have begun withholding their best deals from customers who use a broker – attempting instead to drive more business through their branches, where they don't have to pay advisers a referral commission.
Although it might sound innocent enough – such practice is preventing thousands of customers from getting the best deals, at a time when reasonably priced home loans are hard to come by.
A side effect of the credit crunch has been that more and more customers are using brokers to help them find an affordable deal when they come to remortgage – and understandably so. Not only are mortgages harder to come by these days, but the onset of much larger fees in recent years, means it's no longer easy to understand which deal will offer the best value. A low headline interest rate and a £2,000 fee, for example, will only be worth it if you've got a very large mortgage.
Although the mortgage broking community as a whole has developed a somewhat patchy reputation in recent times, there are some excellent brokers out there, who will save you time and money by carrying out a search of the whole market for you.
But after the high street lenders' recent cynical move, you can no longer be sure that your broker has matched you up with the cheapest deal.
Mortgage broker Savills Private Finance, for example, tells me that the Woolwich is currently offering a two-year fixed rate of 5.49 per cent to customers in their branches. Yet the best equivalent deal for a broker is 6.19 per cent. The fees are the same on both.
Clearly, few consumers realistically have the time to trawl every lender on the high street before they take out a loan – yet this now seems the only way to be sure you get the best value.
The Council of Mortgage Lenders, which represents the high street banks and building societies, is unapologetic, claiming that its members are doing nothing illegal. But their need to call on the law to back up their case is surely the ultimate proof that what their members are doing is morally dubious.
Most disappointing has been the Financial Services Authority's pathetic response. While the FSA is always banging on about the value of financial advice, they insist there's nothing wrong with the fact that mortgage lenders are undermining the broker market (ultimately to the detriment of consumers).
But regardless of the regulator's disinterest, I can't help thinking that this will come back to bite the banks. The brokers are a powerful lobby, and disenfranchising them will not do them any favours in the long-run.
Until this mess is sorted out, however, consumers would be well-advised to pop into a few branches as well as seeing a broker, before choosing which lender to give their business to.
nnn It's not just the mortgage market where the FSA has been letting consumers down this week. Their long-awaited report into comparison sites was finally published on Thursday, essentially concluding that no regulation of the industry is necessary.
Save & Spend has highlighted numerous examples of bad practice across these sites, yet the FSA's crack team seems to have missed them entirely. The regulator clearly has no interest in regulating another sector. But with more and more consumers using these sites to buy financial products, they are wrong to brush aside calls for regulation.
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