After studying Enterprise Financial Services and receiving Mortgage Advisor Qualification, Mr. Christopher Downham worked as a financial adviser covering all areas of the market: pensions, investments, protection and finance. Here he obtained all the necessary industry qualifications. He held various managerial positions in the field of mortgage business. Since 2004 he works as a Director of Simplicity Financial Services providing international property finance and commercial finance. In 2005 he accepted a position at BulgarianHomeLoans – part of SimpliGroup – and became UK’s and Bulgaria’s first independent mortgage brokerage managing director. As the speaker of the 3rd Annual CEE Mortgage Business in CEE SEE & CIS (17-18 January 2008 in Budapest) conference he shared with us his standpoint on the market situation in mortgage business.
1. You said that UK mortgage market is “most dynamic, innovative, efficient & regulated in the world”. What are main reasons and drivers behind this market trend and do you think that this market will be developing in the same pace in the future?
I believe that our mortgage market (both in terms of product choice and distribution techniques) is the most advance due to several reasons. Firstly we have had a long history of financial intermediaries working in the UK market, they started as life insurance salesmen or a banks own sales forces selling just limited product ranges. As the sophistication of the market and consumer demands increased our advisers also altered to match the markets changing needs. Secondly, the UK housing market has witnessed a massive rise in property prices and this in turn has made it more attractive to the banks and the intermediaries to strive to achieve greater efficiency. The UK has a proud history of banking and financial product development and this aided the development of our market due to the UK banks and intermediaries being happy to break the mould and design new products and ways to distribute them. Finally the regulator was not really something that was needed but was forced upon the UK mortgage market via EU directives. The UK mortgage market was working very effectively under a voluntary code of the Mortgage Code Compliance Board (MCCB) albeit a voluntary code that was seen by consumers and lenders a minimum requirement. However, regulation of our market has really been quite successful and seems to have been sensibly implemented in the market. The excellent use of common IT platforms between brokers and lenders has also massively contributed to the effectiveness of the UK model.
Although I believe that all other countries should learn from the UK model I do think that although 90% is positive they would be well placed to also learn from some of the more risky practices that have also been promoted and permitted.
I do believe that the UK market will continue to develop, things will not be as buoyant in the next couple of years as they have been in the previous 10 but when times get tough innovation is even more important.
2. You said that 60% plus of mortgage business in the UK is originated by brokers. What is current percentage in the Bulgaria and the CEE? And how would you estimate future development in this region?
In Bulgaria I would expect it to be less than 5% in the EU as a whole maybe nearer 20% but heavily slanted towards Western European countries. It is hard if not impossible to obtain accurate figures (especially for Bulgaria) as their markets do not provide the similar level of market intelligence as we are provided with in the UK from the Council of Mortgage Lenders (CML). I do believe that the markets in all EU countries will eventually find that about 60% - 70% of all mortgage products (or complex financial products) will be distributed independently via mortgage brokers. How long this takes will depend on how quickly other necessary factors are introduced to the market, factors such as common IT platforms and regulation. Fact is that a truly independent mortgage broker who is working purely to provide best advice for their client is the most effective way to distribute mortgage products. It is good for the banks, excellent for the client and also allows the broker to make a decent income.
3. Do you think that current sub-prime crisis will also significantly influence mortgage development in the CEE region and Bulgaria particularly?
I think Bulgarian banks will use it as an excuse more than an actual reality, they were never using American commercial banks to secure their loan books and were also not giving sub prime loans. I have had meeting where Bulgarian banks have mentioned the credit crisis but I feel it is used more as a turn of phrase rather than having a real understanding as to what the real effects are. In the medium term I think it will be beneficial for banks from more emerging countries as they can make sure that the build strong, non sub prime loan books that might be more attractive to commercial banks when they decide to re enter the market. I believe all countries will continue to innovate but would stress that they should learn from more established markets rather than try and recreate the wheel.
4. Do you think that banks can achieve the same level of efficiency as mortgage broker? Why?
Not really, banks do not offer the same service as a broker and will only ever offer a tiny fraction of what a broker can offer. A bank should provide the best product that it has access to, a broker should provide the best from the whole of the market (subject to regulation). Brokers will meet clients after hours and in their own homes, build a life long relationship and really get to know their client. Due to the often high turnover in bank staff and the restrictive working hours combined with lack of product choice they can never really compete with a decent broker who is genuinely giving best advice to their client. My worry at the moment is due to the unregulated market in much of Eastern Europe a broker can actually take advantage of his client and give advice best of what is best for his pocket (who pays the most commission) rather than what is best for the consumer. I urge the authorities in these countries to adopt the UK regulation model asap before mortgage brokers are allowed to develop mal practice and earn themselves a justified bad name. This would include a clear line of responsibility and redress fro advice given, provision of clear client facing documentation that is easily comparable and a minimum level of suitable qualifications. Giving mortgage advice is a huge responsibility and can have huge effects upon a client and hence should not be allowed to be given by untrained, unqualified and inexperienced advisers.
5. What was the key learning of the event for you? How did you like the conference?
This was the second year that I attended the conference and I was honoured to be asked to be the Chairman. I was amazed by the pace of change in just a 12 month period. In 2007 independent brokers were something that many banks scoffed at, this year it was certainly forming part of most of their distribution models. Most speakers did mention than the UK model was something that they were looking at as a basis for best practice, I did however, get the feeling that most of this research was internet based and did not include advice given by experienced UK consultants. Listening to so many learned speakers talking about so many issues really helps to cement my understanding of the differences between the UK and their markets as well as the opportunities that exist in the CEE market, needless to say I will be looking at ways to help plug these opportunities and certainly offer my services to banks who are wanting to design their future distribution strategy.
Conducted in January 2008 in Budapest
