Ask the Experts: Paul Broadhead on mortgages

Friday, 30 January 2009 1:18 PM

By Sarah Garrod

Getting a mortgage can be an incredibly stressful process, and probably the greatest financial commitment you will ever have to make.

At the moment, the housing market crisis is further adding to the worry of those homeowners with mortgages, who may be in fear of not being financially able to make repayments.

To quash the concerns of anyone in this position, aboutproperty interviewed Paul Broadhead, head of mortgage policy at the Building Societies Association (BSA), for his advice at this time.

Paul was appointed head of mortgage policy at the BSA in 2008, following a career which began with the then Halifax Building Society, carrying out a number of roles in the branch network and in the head office as senior project manager of mortgages.

Paul was then seconded to the Office of the Deputy Prime Minister as business change manager on the Home Information Pack (HIP) programme, where he had responsibility for stakeholder engagement as well as being chairman of the Central Stakeholder Group. He then became deputy director general of the Association of Home Information Pack Providers in March 2006.

aboutproperty: What is the BSA's take on the government decision last week to support lending?

Paul: We welcome this package; any moves to improve confidence in UK banking and the UK housing market are welcome. The asset protection scheme should, as a matter of principle, be made available to all building societies, just as the earlier government recapitalisation measures were, even though it is unlikely that societies will need to resort to it. We also hope that the forthcoming Budget will include measures to support the flow of retail funds into deposit takers, given the support for wholesale funding announced.

aboutproperty: What should the government be doing following the news it underpaid mortgage relief (SMI payments)?

Paul: Where computer problems have meant that SMI has been underpaid it is important both that the restitution of missing payments is made as a matter of urgency and that claimants let their lender know. By doing so early, their lender will be able to take action to ensure that any missing or reduced interest payments don't lead to further action being taken against them or additional fees being charged through no fault of the borrower.

What do you think will be the pros and cons of the mortgage support scheme?

Paul: Any initiative that helps people remain in their homes when they are faced with temporary difficulties is very welcome. Full details of the scheme are not yet available although we are working closely with government to ensure that the final scheme helps as many people in difficulty as possible. If designed effectively the scheme could help more people to remain in their homes when they face a temporary loss of income as a result of the recession. Although, I have to say that this scheme will not be suitable for everyone. The scheme will enable homeowners to delay a portion of their interest payments for up to two years, it is not a holiday from payments, therefore it is vital that homeowners get independent advice on all of the options available to them.

aboutproperty: What advice would you offer to anyone concerned about meeting their mortgage repayments in the current economic climate?

Paul: Quite simply, contact your lender as soon as you think that you might struggle to meet your mortgage payment. Do not put this off and do not be afraid, it is a very big deal to admit that you will struggle to meet your payment, it is not something to be embarrassed about. It is a fact of life, particularly in a recession that people are going to face difficulties that are not of their own making. Lenders will not just jump in and repossess your home, they all employ trained staff who will offer a sympathetic ear to those in difficulty. Lenders also have access to a range of experts that can help you to ensure that you are making the most of your circumstances and receiving all assistance that you are entitled to. Remember, it is always in the best interests of the lender to help you stay in your home if that is at all possible and it is far better that you work together jointly to stand the greatest chance of this being a reality.

aboutproperty: What advice would you offer to first-time buyers looking to get a mortgage at the moment?

Paul: In theory, the recent fall in house prices is good news for first-time buyers, coupled with the lowest Bank of England rate since 1694, first-time buyers should be in a strong position. The reality is that we are living in times of unprecedented turmoil in global financial markets and things are anything but normal. A recent BSA survey showed that the biggest barrier to buying a property is not securing a mortgage nor being able to afford the monthly payment. It showed that job security was the biggest concern for 58 per cent of people, a dramatic rise from just 12 per cent of people 6 months earlier. For first-time buyers with large deposits, typically 25 per cent of the purchase price, there are some good deals available whilst mortgages for those with less than 10% deposit are in short supply. Affordability is key for these customers, if opting for a variable rate mortgage it is vital that you are confident that you can still meet your mortgage payments if and when rates start to rise, and as always, make the most of the range of advice that is available to you.

aboutproperty: Halifax released a study earlier this week about how first-time buyers were unaware of mortgage 'jargon'. Are there any useful sources of information you can recommend for anyone confused by the process of getting a mortgage?

Paul: Taking out a mortgage is one of the most complex financial transactions that most people ever undertake. As a consequence, it is vital that people make sure that they understand any terms that are used. Borrowers should have no hesitation in seeking clarification from their advisor if they are unsure about anything. BSA also publishes help and advice on its website at:- www.bsa.org.uk/consumer/factsheets/mortgagesandremortgaging

aboutproperty: When you took on the role at the BSA you said "In these extremely challenging market conditions building societies have a distinct message to convey," what is that message?

Paul: Although people often lump banks and building societies together, they are, in fact, very different types of organisation. Building societies are owned by their customers, not faceless shareholders in anonymous buildings in the City of London. This means that they don't just offer much better levels of customer service but because they don't have to maximise dividends to shareholders, they can instead maximise the interest paid to savers and minimise the interest paid by borrowers, which is why societies feature so strongly at the top of best buy tables.

Societies are also funded differently to banks. The majority of their funds come from savers, on average around 70 per cent, meaning that the closure of the wholesale markets has not impacted on them anywhere near as much as it has for their plc competitors. As a consequence of this, while some competitors have had little choice to stop lending, building societies have continued to lend to mortgage borrowers. In fact, in Q4 2008 building societies provided £1,144 million of net mortgage lending.

These are the messages that I intend to convey in my new role to ensure that borrowers realise the excellent service and products that continue to be provided by building societies.

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