A new home page for argos

26 November 2009

What does the launch of Argos Compare mean for the mortgage market?

White: I am not a great fan of comparison sites per se, if you take them as a search tool than that’s fine, the positives outweigh the negatives. It is better than the enquiries continue than dry up completely. I like that the site inasmuch as anything that encourages, in some shape or form, good, old fashioned mortgage advice I am happy with. There are aspects of the site that takes you direct to lender but the important thing is that Argos is demonstrating that brands outside the market haven’t given up on mortgages and it shows that hopefully the worst is behind us.

Morea: I think the comparison website space is pretty well served as it is, so this is just another lead gathering website. If it leads to a good source of borrowers then that’s all well and good. But of course, many people use numerous comparison sites these days, so there is a chance that many of the leads created on a particular site are recycled through many sites.

Cornell: Clearly comparison sites generate leads and some of those people need to talk to brokers, so they are just trying to find an outlet. Linking a trusted retail brand like Argos will obviously strengthen the relationship and most brokers should not turn their noses up at the chance to do a bit more business.

At the Mortgage Business Expo this month, Intermediary Mortgage Lenders’ Association executive director Peter Williams said the mortgage market review would stall the housing market by limiting funding and innovation in mortgage lending, with some people potentially never able to afford their own home. Do you agree that the MMR will have a detrimental effect on the mortgage market?

White: When the rating agencies begin to criticise the MMR in terms of how it might burden the market, making it too manual and pushing up costs, then I think you have a problem. I was glad to hear that the ratings agencies, which are conservative when it comes to risk, thought the FSA were overreacting, it was quite telling.
Right now the regulator is aggrandising, it is exaggerating itself beyond where it needs to be. The FSA are almost trying to fix the mortgage market using 18th century medical tactics - the sector might have an injury, so instead of trying to heal that, the FSA is chopping off the offending appendage.

Morea: The review is just a discussion document, nothing is written in stone. A self-cert ban and a demand for lenders to have more stringent checks of income are likely but the job of the paper is to make sure we do not get back into the situation we have recently found ourselves in. On the possible banning of self-cert, for example, it will be interesting to see how the lenders react to plug that gap.
The ruling may encourage lenders to reassess how they see self-employed people. This is where the innovation will come into the market with lenders and advisers reacting to forced changes.

Cornell: Yes, without question. A large part of what the FSA seems to be trying to do, including blocking new entrants, will not support the sector. The FSA will argue that it is not there to support the mortgage market but it is there to ensure that borrowers are treated properly.
Clearly, it feels the best way of preventing the excesses of 2006 and 2007 is to make sure they never happen again and I think it is a shame because the market needs support to get off of its knees, it does not need anything that will prevent a recovery. When the market is at its weakest, it is not the best time to implement some pretty strict regulation.

At the same conference, CML chairman Matthew Wyles said the FSA looks at mortgage lenders and brokers as “drug dealers at the school gates” and instead suggested that consumers should be treated as adults and allowed to make their own decisions. Given that the UK has had two housing crashes in the last 20 years partly due to unsustainably high levels of borrowing, is the FSA not correct to give more scrutiny to lending practices?

White: In theory, the FSA is right in trying to protect the innocent but people are adults and there is a point where people have to take responsibility for their decisions. The FSA are now overly protective and overly interventional and it is becoming a worry. Also for Matthew Wyles to stand up - a man who does not usually draw analogies with drug dealers - is a big deal. He is, in his roles at Nationwide and the Council of Mortgage Lenders, trying to ring the bell and urging the FSA to get it right before it is too late.

Morea: I agree with Matthew. It is unfortunate that this is the culture we have in the UK right now - people are less responsible for their own actions. Whether that is getting a mortgage or a credit card, there is a blame culture and it is always someone else’s fault. There are even firms out there that allow people to just try and wipe away their debt - some people seem to think having 10 credit cards is not their problem.
But then equally the desire to drive up the quality of advice goes hand in hand with trying to solve this problem - if the standard of advice is high and people still get into trouble then the buck has to stop with them.
The industry should be given a break and people should take responsibility, just as intermediaries have to take responsibility for their advice.

Cornell: The FSA is obviously now taking a more proactive approach to regulation and it is almost as if it is trying to stop people being put in a position where they could ever be financially disadvantaged. I think that is too much.
If we reach a place where the only mortgages sold are fluffy, warm and safe loans that can never get people into trouble it would defeat the object of people having different risk strategies and viewpoints.
The regulator should be making sure lenders and advisers sell mortgages according to people’s needs and people have different needs, which need to be cater to. Matthew’s speech has a lot of merit, and for a man in his position it was a great thing to say.

At the CML conference, FSA managing director of retail markets Jon Pain said the regulator would not allow lenders to easily forget the lessons of the last two years when confidence and funding eventually come back to the market. Although the FSA has specifically ruled out capping loan to value ratios and says it will not require brokers to inspect borrowers lifestyle spending it has proposed introducing restrictions on mortgage lenders. What, if any, regulatory measures do you expect to see adopted by the FSA to stop the mortgage market overheating?

White: The FSA has to accept that there is no such thing as risk-free lending and there are no markets that are not cyclical in nature. We have recessions and we have booms, we just try to avoid depressions and market busts. Now we have got the main problem of a possible depression out of the way, let us not now play round at the edges so much and let us instead let progressive thinking build out of the problem. I am not someone who thinks the FSA is inherently bad, it is just that its guidance is blurred right now. Policing the law is not making the law but right now the regulator is trying to do both.

Morea: I do not think that capping products can stop a market bubble, it is more to do with controlling the desire of the lenders to control levels of funding and borrowing.
Many lenders have had their fingers burned because of the crunch and as a result of that they will have to change their behaviour fundamentally.
People will also become more realistic about what they can afford and how big a mortgage they want.
A new subdued mortgage attitude and lenders taking a new, reserved view to funding will together help to create a long-term sustainable mortgage market.
The FSA cannot keep interfering “just in case”. Regulation has to be applied in the right areas, things cannot just be fiddled with.

Cornell: The FSA should be working more closely with the industry, and while I know the Association of Mortgage Intermediaries works very hard on that issue, the FSA still does not understand the mortgage industry as well as it could do. One of the things that made this crisis worse is that since M-Day in 2004, we have had very little regulatory change - all we had to contend with was treating customers fairly
I think that markets need to be reviewed regularly and there are plenty of wise people who would want to help the FSA take on that task. Lots of mortgage professionals give up their time for trade bodies, not to make money, but because they care about their market. If the FSA engaged with these people it would strengthen the market for the future.

Despite the upturn in lending in the third quarter of this year, total lending looks likely to be at its lowest level since 2000. Do you expect to see any improvement in 2010 and, if so, why?

White: I don’t think there will be a real improvement in the 2010 market. The improvement will come when interest rates rise because that is a sign that the worst is behind us. Then the remortgage market will kick in,and people will use their money for other things to drive the economy on.
Interest rates will stay at 0.5 per cent until the end of the summer at the very least, so that means the business we have seen this half of the year will not really improve. I think the CML’s recent prediction of around £150bn gross lending for 2010 is a good bet.

Morea: It is a difficult one to call because 2010 lending will be limited by lenders’ desire to lend and the ability of borrowers to borrow. A lot of people will be pretty much ruled out because of a lack of equity and unless lenders come out with a lot of high-LTV products, many people will be unable to do anything.
Of course, unemployment and the fear of unemployment will also be a big factor. If unemployment figures continue to climb, we will all start looking over our shoulders and asking whether it is prudent to buy a house. If there is an increase in lending it will be small, if we do reach the CML prediction of £150bn it will be a good achievement.

I think there will also be new entrants in the market, so £160bn is fair and, of that, I think advisers will do all the business above £140bn as branches are at maximum capacity right now.

The stamp duty exemption on properties valued at less than £175,000 is set to end on December 31. Has the initiative had any effect?

White: I think it was minimal, it did have an effect but it was not a driving effect. The problem was that we did not have lenders trying to encourage first-time buyers alongside it - far from it.
We had half the solution in play but, without all the ingredients, it was not going to make the market move significantly.
It is ironic that just at the time when the Government is withdrawing the stamp duty break, the lenders are beginning to slowly come out with some better rates for first-time buyers. It should continue for at least the next six months because it would help things measurably, at least much more so than over the past year.

Morea: The stamp duty cessation probably did not make many people go from not buying to buying but then if you were planning to buy then you would be further encouraged by the stamp duty break.
We have done some research and found that if people left it for a few months, and spent the next few months saving another 5 per cent deposit rather than rushing to get in before the end of the break, then they may find they are better off paying the stamp duty because the rate they could secure would be significantly better for them in the long term.
Ideally, instead of an extension to the break it would be better to review the whole tax, but I very much doubt that will happen.

Cornell: It has helped as a part of a series of measures but it is difficult to quantify the exact impact. For many first-time buyers, the break was a saving of a few thousand pounds and when you are buying your first house that is very useful.
No one would have seen the stamp duty break as the sole reason for them to be able to afford a house but it may have supported their decision.
I do not expect the Government to continue the break because house prices are moving in the right direction and the Government has to step back. The Government also needs as much money as it can collect right now.

 

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