Speaking at an FBAA event in Sydney yesterday, industry veteran Steve Weston said regulatory changes in the UK have reshaped the banking and mortgage markets, and spawned a new industry of firms eager to profit off banks and brokers paying redress to customers in relation to past selling practices.
“The most frustrating thing for the UK market, and I suspect we are going to face it here, is there are things that the industry had been doing for years and that were once viewed as acceptable could be viewed in five or 10 years from now as unacceptable. There will then be a retrospective view, which could be painful for advisers and lenders as occurred in the UK,” Mr Weston said.
“We could see a new industry of ‘ambulance chasers’ as they are referred to in the UK, who receive 25 per cent on whatever they can get back from banks and brokers on behalf of their customers for misselling or poor advice. There is a real risk we will see this in Australia so it is very important brokers and lenders are taking steps to safeguard themselves against this. This will also lead to better customer outcomes and healthier businesses for everyone." he said.
“Some of these things will be challenging to hear but you do need to know about them because they could play out as they have in the UK. We need to prepare for the worst and hope for the best.”
Mr Weston spent several years in the UK as CEO of mortgages at Barclays. Prior to this, he held senior roles at a number of major Australian banks. During his time in the UK, he witnessed the full impact of the financial crisis on the nation’s lending industry, as well as the subsequent intense regulation.
Mr Weston told brokers in Sydney local mortgage professionals could find themselves in hot water, as they have in the UK.
“Let’s say I’m a broker or a lender and you come to me for a mortgage because you want to buy your first home. I do my fact-find and see you need $400,000 to complete the purchase. Let’s say you have a large deposit to contribute so I suggest you borrow $600,000 and put the $200,000 in an offset account to give you flexibility for the future. That has been a common structure for many years,” Mr Weston said.
“But in five to 10 years’ time when the ambulance chasers are looking for a hunting ground, they will seek out customers who turned out not to be disciplined with their money.
“Let’s say they used the $200,000 for lavish holidays rather than home improvements. Lawyers will grill banks and brokers about recommending the offset structure, not highlighting the risks of being ill-disciplined and not following up with borrowers to see if they are using the offset account appropriately. The question could also be asked about what the broker was doing to justify the trail commission if they weren’t doing health checks on their borrower.”
While the broker may argue that they cannot be held responsible if a customer uses the funds inappropriately, Mr Weston warned that this may not hold up to scrutiny in the future.
“That is where the interpretation of a broker’s responsibility may change. The customer has less responsibility in the UK. As a credit adviser or lender, you are the expert. You need to make sure that a product is not only appropriate today but over the long term. That is a big change from what has traditionally been the case.”
The Australian mortgage market has a number of similarities to the UK, which has five major banks and a significant reliance on the third-party channel.
Mr Weston noted that broker market share in the UK has risen from 50 per cent in 2013 to more than 70 per cent today.
[Related: UK lenders question calls for more capital]