The pitfalls of direct mortgage lending

The big high-street banks have been busy reporting their interim results and the picture is looking pretty rosy when you consider the state most of them were in just a year or so ago. Losses have been turned into quite stunning profits, writes Melanie Bien.

The sea change in reporting is also remarkable: it's far more muted than in recent years where banks were attacked for big profits. That's partly because profits are nothing like as great as they were at the height of the boom years.

We've also experienced a crippling credit crunch so know that banks in profit are a Good Thing because a) they shouldn't need bailing out again and b) they will be able to start paying back the taxpayer all that money they borrowed.

Getting to these profits has been painful, with job losses, branch closures and severe retrenchment.

Many of the banks have increased their share of the mortgage market, which has helped boost profits. That's encouraging because in the current market we rely on these big banks to do the lion's share of funding so if they are prepared to do more of it, all the better.

Smaller lenders, struggling with repairing balance sheets and the inability to raise money in the securitisation market, often lack the resources to compete.

But let's not get carried away. Barclays, for example, revealed that its conservative lending stance continues with an average LTV on new lending of 51%.

It's fair to say there won't be many first-time buyers in that little lot. It may be an increase on the average LTV of 48% last year, but not much of one.

For those who provide independent financial advice, this is all encouraging. High-street banks may be making all the noise, funding TV adverts highlighting their mortgage rates and promising improved customer service, but going direct has its pitfalls.

HSBC may say that 80% of mortgage applicants are accepted but most brokers have dealt with rejected borrowers who haven't made the grade. And even when they do, going direct puts customers at the mercy of service levels, which aren't always up to scratch.

By all means, let's congratulate the big banks on their interim profits. But their success doesn't mean there's no room for independent financial advice - actually, there's even more of a case for it.

Melanie Bien is director at Private Finance