As you no doubt will have seen, in his recent Inflation Report, Mark Carney advocated a softly-softly approach with regard to the recovery and the gradual rise in interest rates. The likelihood of any rate rise will now be based on a host of detailed economic indicators. This note of caution, along with the Bank of England’s careful approach, is in many ways in keeping with other developments in the financial markets – most notably for Shawbrook and its broker partners: the fast-approaching implementation of the MMR.
It may come as a surprise to some that Shawbrook’s Commercial Mortgages team should take such an interest in the Mortgage Market Review. We are, after all, a commercial and not a retail lender. Much has been written of the implications of the MMR for those lenders and intermediaries involved in the retail markets; much less has been said around the potential repercussions for the commercial market. But we feel that those solely involved in commercial deals who ignore the new residential regulation do so at their peril!
The fact is that just because the commercial market is unregulated at present, there is absolutely no guarantee that it will remain so – particularly if we neglect to conduct ourselves in as squeaky-clean a manner as the MMR demands of our retail counterparts. Ultimately, much of what is covered in the MMR is equally applicable to the commercial sector; recognising that crossover and addressing it now is in the best interests of everyone involved in this market. On the one hand, this preparedness will stand brokers in good stead if the commercial arena is subject to more regulation; on the other, adopting best practice gives the regulators less reason to step in to begin with.
An obvious example of how this responsible approach works in practice can be seen in relation to affordability and stress rates. These things are enshrined in the MMR, and as a lender we feel they should be enshrined in our commercial thinking also. That’s one of the reasons we put so much emphasis on due diligence in our underwriting. We’ve always been vocal (and I personally may have shouted louder than most!) about our personal approach to each deal our brokers submit to us. We’re not about ticking boxes, we’re about exploring each case on its individual merits and coming back to the broker with an answer as soon as possible. A big part of that is ensuring that when rates do rise – and softly-softly approach or not that will happen – the payments remain affordable for the client. Of course this protects the client but, for the regulatory reasons outlined above, it also protects the broker in the long-run.
This long-term outlook also comes into play in our stance towards commission disclosure. We have always communicated our commissions for all to see in our formal offers. We recognise that this approach is not championed by all, but it is engrained in our practice and it always will be. I think sometimes brokers don’t realise the risk they’re putting themselves in by working with lenders for whom this is not par for the course. We also know a number of brokers who are themselves not the biggest advocates of commission disclosure, as well as some who are open to volume override commission. While we’re not about to get on a high horse and condemn this practice outright, we would just ask our broker partners to consider the issue deeply and think about the implications longer term.
Transparency and a responsible approach really are in the interests of all of us involved in the commercial mortgage sector. That’s why – high horse or no – we’re keen to take the reins and sustain for the long-haul the market we love.
