News & Views

Interview with Nigel Alexander

With transparency the order of the day we chat to Nigel Alexander, Director at Fincorp to find out why straightforward, clear-cut lending is important to Fincorp, what it means for brokers and consumers and why 'clear and simple' is the company's mantra.
How important is transparency to Fincorp?
Very, we've been in the business over 20 years. We take the view that a reputation takes a long time to build up and can be ruined in a second. We're very motivated by that and treating customers fairly. We like to keep everything above board in a sector that hasn't always enjoyed the best reputation.
Why is it so important to the consumer?
It's important for them to see what they're getting themselves into. People can be seduced by a headline rate. One lender may only charge a rate of 0.9% while others in the market charge 1.5% but there's a 3% of fees hidden in the small print. We don't have any small print. What you see is what you get with us. We're perfectly upfront about it. We tell people exactly how much it will cost from day one. If they're seduced by a lower rate we encourage them to look at the overall costs rather than just the headline rate.
How does it help brokers?
It's an easier product for them to sell. If they like us, and they like what we say, they can go back to the customer and say 'Here you are, this is what you'll pay. There are no extra costs. There's no fees in the transaction'. You pay a single rate and that's it. It's easy for them to explain to the clients.
Why are some lenders not as transparent?
I don't think it's a lack of transparency, I think it's how they present themselves. Everyone in this market has a way of presenting themselves and we're just different because we don't have any fees. It's indicative of how we do business; it's straightforward for the customer and the broker. Our mantra is 'clear and simple'. People ring up and, initially, find it hard to believe we don't charge any fees.
Do you think documentation for loans should be clear in terms of fees?
It's in the terms and conditions so lenders who charge fees would say it is. That's fair enough. Loans are a huge commitment; it's like taking on a mortgage. I don't suppose everyone reads the conditions on the back of a mortgage document but they do read the headline terms.
Finally, why do you not charge fees? How do you manage?
We have our rate, that's how we are remunerated. We don't seduce people with our headline rate. We get brokers or clients ringing up saying they can get a better rate elsewhere and we tell them, before they do, to check if there are any fees. When they do, they often find we are extremely competitive. In the consumer market consumers expect to be stung with a fee. Often it's in the small print, but our print is all the same size. We don't have anything to hide.

News in Brief

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Average age of a first-time buyer could hit 44
The average age of a first-time buyer could hit 44 as would-be homeowners struggle to get the money together to get a deposit. Scottish Widows reports potential buyers could be unable to start making serious savings towards a deposit until they reach their thirties meaning they are unlikely to make it onto the property ladder until they reach their mid-forties. The average age of a first-time buyer is currently 30 but Scottish Widows predicts this is set to change. It says consumers are too busy paying off credit card debt and repaying loans to focus on saving for a house.

Demand for clear-cut lending rises

Earlier this year Which? Money announced that lenders are charging their customers a total of 39 different types of fee. It claims since the credit crunch hit the number and level of fees have been on the rise.
Apparently four in five two-year tracker mortgages charged a whopping £990 or more in set-up fees in 2010, compared to just one in five in 2007.
The fees include anything from booking and valuation fees, to charges for falling into arrears and even for choosing to take out your buildings insurance with someone other than your mortgage provider.
The research has further highlighted the pressing need for transparency in lending.
Since the credit crunch hit funding has been tight across the whole lending arena and borrowers have struggled to meet the strict lending criteria. The added confusion of fees is a further uphill struggle.
Borrowers may find a product with an attractive rate but not realise that hidden fees and costs could make the product much less cost effective.
Keeping it simple in specialist sectors
In specialist sectors like bridging hidden fees can be an even bigger issue because many consumers - and indeed some brokers - do not fully understand the product in the first place. Adding a myriad of fees to the mix and trying to help customers understand why is a tall order for even the most experienced broker.
Adam Tyler is chief executive officer at the National Association for Commercial Finance Brokers. He says in 2007 the organisation decided that, although unregulated, its members would disclose the commissions they would receive to their customers.
"The NACFB has always had a Terms of Business Agreement, so that customers can see upfront what fees they are going to pay," he says. "What we implemented in 2007 also meant that the commercial lenders should also disclose any commissions that they are paying to brokers."
Tyler says this has been in place now for over three years and lenders should be disclosing broker fees to their customers within their mortgage offer letters.
"We have also worked with the press and small business trade bodies to endure that a customer only uses a broker from the NACFB where the fee structure will be transparent."
But it's not just the fees brokers receive that are often shrouded in mystery for consumers. On many occasions product fees and things like exit charges are hidden so deep in the small print consumers are completely unaware of them.
Sue Anderson, spokesperson for the Council of Mortgage Lenders, says transparency is clearly important so that consumers can make an informed choice and understand the deal that they are choosing.
"Transparency sits at the heart of the current regulation system," she says. "The personalised key facts illustration is a key tool to ensure that consumers have full information about all the product features, including fees, of the loan they are choosing, and the Mortgage Market Review continues to place a high value on transparency."
Regular alerts by lenders to any changes in their tariff of fees and charges for the ongoing administration of the mortgage account are also a regulatory requirement.
But Anderson says transparency is not the same as uniformity, and it is entirely appropriate that lenders should be free to offer products with different fees, or fees calculated in different ways, so that consumers (and their brokers) can have choice and the ability to pick products that are a good fit for the individual customer's circumstances.
Making brokers' lives easier
"One of the ways in which a good broker can add value to the customer experience is by helping and advising them on comparing fees, as well as other features, of different loans."
For brokers, trying to explain the fees to consumers can be difficult, especially if the customer is blinded by the headline rate and is reluctant to see the negative side to the product.
Mehrdad Yousefi is an industry expert and former head of marketing for Bank of Ireland. He says transparency enables brokers to research all products and lending criteria in any lending marketing faster and more accurately.
"They are also able to provide an informed choice and allow their client to make a decision with all the available facts at their disposal," he adds. "Lack of transparency results in delays and sometimes the wrong decision since the broker may assume lender B's criteria is the same as the published criteria of lender A even when lender B has no published criteria sheet for instance."
Other examples include different redemption fees for the same product from two or three lenders where one has not published their fee structure to the broker and/or consumer at the outset.
Yousefi says it would be extremely helpful for all lenders to have a list of their fees and charges for new and existing customers published in paper format and online. He says this is already happening in 100% of cases in residential and buy-to-let mortgage markets. "Most consumers struggle to understand when fees are applied to the loans," he says.
"It is the lender's responsibility and the brokers role to explain this in writing and verbally. Again, 99% of responsible lenders/brokers explain this well these days."
As far as the bridging finance sector is concerned, there is room for further enhancement.
"The information sheet and website of some bridging finance companies should be improved to provide greater transparency to brokers and consumers generally and especially in the area of upfront fees including admin fees and arrangement fees," adds Yousefi.
Laying out the fee structure of a product from the onset makes life easier for brokers and consumers, which in turn helps promote lenders. Transparency in lending, it seems, is a win-win situation.
What the brokers say:
Jonathan Cornell, head of communications, First Action Finance
"I think transparency is crucial in every sector, especially in bridging where there are often exit as well as entry fees. Consumers struggle with working out what is good value in every sector whether its mortgage rates and fees or supermarket multi buys. Fortunately brokers are on hand to guide borrowers to the most suitable rates. Education is important but it can only go so far. Product innovation tends to make products more and more complex offering a greater choice and ultimately better value for borrowers. However, the more complex a product gets the greater the need for advice."
David Hollingworth, head of communications, London and Country
"As a general principle lenders need to be completely transparent in what they are offering especially as confidence in banks and financial institutions is at such a low. Consumers don't want to have to sift through every bit of small print to avoid being caught out. Regulation can help this process and also helps avoid confusion for consumers over what type of lending is covered and what isn't."
Melanie Bien, director of independent mortgage broker Private Finance
"Transparency is crucial for brokers when communicating with clients. There should be no ambiguity whatsoever about fees. The Financial Services Authority is very clear about the protocol that should be followed. We are very clear about how we are remunerated and ensure clients understand this right from the start. Those taking out bridging finance may also find it difficult to understand but this is why it is so important to seek independent mortgage advice before taking the plunge. Brokers have a duty to educate the consumer because the client comes to us for advice. The broker will start from scratch, spelling out what fees are involved and what effect they have on the cost of the mortgage. It is therefore extremely important that brokers are educated and trained well, and the regulator demands that this is the case."