Lorna Bourke, Consumer’s view
Higher interest rates, massive consumer debt, mortgage arrears and a slow-down in the world economy are combining to make life much tougher for mortgage intermediaries who up until now have been in the happy position of seeing business “just walking in through the door” as one broker put it.It will take time for the Bank of England’s surprise 0.25 per cent increase in the base rate to 4.75 per cent to feed through into higher monthly mortgage repayments but if, as expected, the monetary policy committee loads another 0.25 per cent on to base rate by November, both home movers and potential buyers are likely to lose confidence. If what is happening in the US housing market is anything to go by, the UK could be in for a significant slowdown. Both intermediaries and lenders will have to work harder and more efficiently to drum up new business. Homeowners buying goods and services when they move house has been the main driver of the US economy, sucking in goods from around the world and allowing other countries to prosper, too. But this looks like coming to an end. Mortgage rates which are traditionally fixed for the full 30-year term of the loan have been rising in line with the Federal Reserve’s increases and now stand at 6.55 per cent compared with 5.63 per cent this time last year. American analyst KBW has been analysing the Californian residential property market and it shows a rapidly slowing market. House price inflation is down from 20 per cent at the end of 2004 to 6 per cent today, the lowest since the end of 2001. KBW analysts believe that if current trends continue, by September, prices will be flat year on year and in some areas, prices are already falling. New housing activity is down by 21 per cent over the past year. Nationally, home sales have fallen by 7 per cent during the second quarter of the year compared with record levels of a year ago, according to the National Association of Realtors. There are 3.725 million houses for sale in the US, a 39 per cent increase on the same time last year. If higher interest rates are having that sort of effect in the US, they are likely to have a similar effect in the UK. The Council of Mortgage Lenders has just reported an increase in the number of mortgages in arrears and more houses are being repossessed. At 8,140, the number of repossessions in the second half of this year was the highest since the first half of 2001 and was a big increase on the 5,690 in the second half of 2005 and 4,620 in the first half of last year. Mortgages over 12 months in arrears rose from 14,380 in the second half of last year to 15,070 in the first half of 2006, up from 12,580 in the same period last year. With more and more borrowers defaulting on mortgages, credit cards, personal loans and overdrafts, intermediaries who may have traditionally stuck to the mainstream market are going to have to learn how to deal with increased numbers of impaired credit applicants. They will need to research the whole market for the best deals for sub-prime applicants rather than sticking with their favourite tried and tested panel of lenders. If they don’t, they will find themselves being forced to turn away business. In addition, they will have to be more proactive in keeping contact with clients, diarising when a concessionary deal is coming to an end and contacting the client well in advance with suggestions for new deals, if they want to retain the business. Many have been particularly bad at this and are only now, rather late in the day, waking up to the fact that business might stop walking in through the door. There are software packages available that allow intermediaries to do all these things as well as keep track of applications in progress, monitor compliance and a host of other functions. But just as mortgage intermediaries have been slow to take advantage of the equity withdrawal software that is available, some have been slow to organise their business efficiently and with up to date systems. As the indications of a slowdown in the market multiply, only those who can offer an efficient whole-of-market service and administration to back it up will survive the downturn intact. Money Marketing50 Poland Street, London W1F 7AXA lot of advisers probably think that the Government has been talking out of its Asp in recent weeks. IFAs have been warned by the Treasury that if they use alternatively secured pensions to – in its view at least – avoid inheritance tax in large enough numbers, then the Asp will be abolished. Unfortunately, even if advisers wanted to obey this Treasury edict, they may not be able to. First, as Standard Life is arguing, IFAs advising company schemes could be placing trustees at risk of breaching legislation outlawing discrimination on religious grounds. The ASP is designed to give the Plymouth Brethren a way to receive their pension without buying an annuity. But in denying other non-Brethren members of a scheme they may be discriminating against them on religious grounds and could be in danger of breaking the law. Now, Aifa has waded into the debate. It is telling IFAs that they must advise clients of all of the options, including Asps, regardless of their beliefs. Aifa is saying that it does not matter what the Treasury thinks about how legislation and regulations should be used – what matters is that IFAs follow what the law and the regulations say. In this case, IFAs must make their clients aware of Asps and their potential benefits, inheritance tax and all. So it would appear that the industry and the Treasury are on a collision course. The industry says it has to apply the law as the law stands, no matter what the intention of those who wrote the legislation was or is. The Treasury – blaming the industry – may axe Asps because it believes they have been abused. Wouldn’t it be better if someone did some calculations into the actual impact of Asps being used widely on Government revenues. If this is, as some suggest, a tax-neutral or even tax- beneficial situation, then the Government could adjust its position without having to make another dreaded U-turn. Then the pension industry could get on with giving proper pension advice.