We Introduce You

One recent story I find quite interesting is the problems the Financial Inclusion Taskforce is having trying to encourage mainstream lenders to offer low value loans.

The government launched an initiative in late 2004 to try and develop methods whereby the financially excluded (people on low incomes in deprived areas) could get affordable credit. At the time it pointed out that a lack of low cost and low value loans meant that the financially excluded often turned to high cost doorstep lenders and even illegal loan sharks which ultimately made their debt problems worse.

A Social Fund exists whereby the Department of Work and Pensions (DWP) can give out crisis and budgeting loans and as part of the Financial Inclusion initiative the Treasury extended this by getting the DWP to administer a growth fund.

During this year the DWP began to work with the third sector (in essence non profit making credit unions) to administer the Growth Fund in deprived areas.

In December the Financial Inclusion Task Force gave an update on its work with the Growth Fund and said it was working well, but that the number of loans the fund had given out had been below its expectations.

The Task Force also said it had been exploring the extent to which mainstream lenders (such as banks and credit card providers) might move into the market for low value loans (£300-£600). It said, the response had been fairly negative, with all of the lenders approached saying that the reputation risk associated with charging a cost-reflective interest rate to the affordable credit sector is too significant (given the projected returns) for major banks to be prepared to get involved in the market, even through sub-branded subsidiaries.

To me, as the Task Force also acknowledges, it looks as though the only viable solution is to extend the number and coverage of the third sector and there will never be a mainstream solution.

Ah well, the wheels of commerce have started to grind to their annual halt. I wonder how many times ‘Well, there’s no point starting it until after the holidays’ have been echoed around British offices.

On the news front, a story that caught my eye was one that in their monthly newsletter for mortgage advisors the FSA told intermediaries, who use packagers, to look at their procedures.

The FSA said it had visited nine brokers, six packagers and conducted a telephone survey with another twenty-five brokers. This exposed worrying findings into the relationship between mortgage brokers and packagers - where a number of advisers are relying entirely upon the product suggestions made by packagers without making any of their own checks.

The investigation found that approximately a quarter of brokers only sometimes checked the suitability of a product suggested by a packager for the customer. A smaller number of brokers never checked and relied entirely upon the product suggestions made by packagers.

The FSA also pointed out that that where brokers and packagers had contracts saying that it was the responsibility of the packager to give reasons why a product had been selected and if that advice was later found to be incorrect, it was the responsibility of the packager to compensate the end customer were wrong.

The FSA is warning that even if such an agreement has been drawn up, all regulatory obligations remain the responsibility of the broker and it would expect them to evidence the reasons why the product they recommended was suitable for their customer. Information provided to the broker by the packager can form part of that suitability assessment. In the case of non-compliant advice, any resulting regulatory action will be taken against the authorised broker, not the packager - even if that packager sourced the product.

With regards to giving out a Key Facts Illustrated (KFI) to customers, the FSA found that it was sometimes the broker who gave them to the customer and in other cases the packager. The FSA said regardless of who issues the KFI, it remains the responsibility of the authorised firm that is dealing directly with the customer to make sure the KFI is given to the customer at the right time.

Advantage has launched a new version of its equity share mortgage specifically targeted at people in the police force.

Police officers only need to have completed six months of their probationary period to qualify and the mortgage is available to both people with existing mortgages as well as people starting on the property ladder. Advantage have also made the mortgage available to people who want to relocate.

The main difference between the standard Flexishare product and that designed for the Police Service is that on both the conventional mortgage and residential ownership loan parts of the financial arrangement there is tailored interest rates.

As with the standard Flexishare product the amount you can borrow is based on an affordability model and not income multiples.

Borrowers are asked to pay an initial 5% deposit and the applicant can then borrow between 15.1% and 80% of its value through the conventional mortgage part of the Police Service Flexishare plan.

The residential ownership loan incorporated in the product will cover between 15% and 35% of the property value and repayments for this have been set at 2.99% for the entire term of the loan.

Topping up the conventional mortgage and residential ownership loan is the equity loan funded by Advantage, which will share in any future increase or decrease in the property value - in the same proportion as the share borrowed in the residential ownership loan.

Advantage has been hammering out the terms of the new mortgage with Police Federation Mortgages. Although this name sounds like it is in some way directly connected to the Police force it is actually a Mortgage Introducer that has been approved by the Police authorities.

It seems strange that the Police Federation Mortgages website still proudly states to be part of the listed Millfield group, when that group went into receivership in June. The Money Portal PLC purchased the mortgage introducer in the same month.