The fallout from Northern Rock has led to fear and mistrust in the housing market. So Barratt has decided to establish a more transparent relationship between itself and lenders, says Mark Clare
Seven months after the Northern Rock episode, the availability of mortgage finance is perhaps the single biggest factor that has changed the market for housebuilders.
If banks are concerned about lending to each other, there has to be real concern that a growing number of home buyers will have difficulty in securing the finance they need.
In short, the issue of securing funds to enable customers to buy our products makes the lending institutions one of the housebuilders’ most important stakeholders at this time. It’s a sharp contrast to the historic position where not enough was done to develop these relationships.
In the aftermath of Northern Rock I have been able to meet our major lenders to understand how we can do more and better business by working more closely together, and I have been encouraged by their responses.
Of course, there is little that individual housebuilders can do in terms of general market liquidity and it’s clear that more restrictive lending will be a feature of the industry for some time. But there was one area that concerned all lenders that can be addressed and that related to transparency, valuations and disclosure. In almost every meeting I was told of cases where lenders felt they had not been told the whole story.
As a result, we have put in place policies to ensure that we respond to their concerns. These are enshrined in a charter setting out our commitments – and the redress if we fail to deliver.
We believe that by working closely with our lenders and our intermediary partners it will be possible to safeguard the quality of our mortgage business. We hope that these improved relationships and our better understanding of each other’s needs will lead to first-class products and service for our customers.
So what, exactly, do the lenders want?
All our solicitors, as a term of their instruction on the sale, must obtain an undertaking from the solicitor acting for the buyer that all incentives have been disclosed
to the lender.
Well, perhaps not surprisingly, they want complete transparency. They want all incentives fully disclosed so they can be certain that they are lending against the actual sum being paid by the buyer.
It’s not an unreasonable request, so we have formally pledged in our charter to make it clear to buyers that we disclose all incentives to those acting on their behalf to exclude any possibility of so-called “off contract agreements”. We also make it clear that buyers are responsible for the disclosure of all incentives to their solicitor and mortgage lender.
All our solicitors, as a term of their instruction on the sale, must obtain an undertaking from the solicitor acting for the buyer that all incentives have been disclosed to the lender. If the buyer’s solicitor refuses to give that undertaking, our solicitor will notify us. We will then notify the valuer so that they can tell the lender directly.
To ensure we deliver on our commitment we have introduced a “no disclosure, no loss” guarantee for those we work with. If, as a result of material non-disclosure by us, a mortgage lender is exposed to loss, they will be compensated.
Finally, in the event that a Barratt home is repossessed, we will endeavour to sell the property, on the lender’s behalf, through our sales team, which we believe will realise a higher value.
With the market still fragile, increasing trust between housebuilders and lenders is a strategic imperative for both sectors.
Once that trust is rebuilt I believe there is an opportunity to build even stronger relationships between lenders and housebuilders, to work together to provide more innovative solutions for today’s customers and to wrap them up in a package that makes it easier for the right customers to borrow.
Housebuilders will not be able to fix the global credit crisis, the restrictions on lending or confidence in the market. We can, however, do everything in our power to help our customers find lenders by guaranteeing the transparency of what we do. This is a challenge the whole sector will now have to embrace.
Mark Clare is chief executive of Barratt Developments