Jonathan Cornell Head of communications, First Action Finance
Matthew Fleming-Duffy Financial director, Abacus Mortgage Advisers
Danny Lovey Sole practitioner, The Mortgage Practitioner
Are you confident the new Government will tackle the problems of illiquidity in the wholesale markets in an attempt to boost lending power in the UK?
Cornell: I suspect the Government will rely on the advice of the Bank of England, which has indicated it will not renew the special liquidity scheme or the credit guarantee scheme.
While it would appear there are a few securitisations happening and that investors have a good appetite for high-quality assets, the Council of Mortgage Lenders has pointed out there is a funding gap of £300bn or so. While I would love the Government to take some proactive steps, I just don’t think this will happen as it will allow market forces to sort things out.
Fleming-Duffy: The new coalition Government is focused on breaking up the banks and scrapping home information packs but it is debatable whether it could have any significant influence over the wholesale markets anyway, as the liquidity problem seems primarily to be due to a lack of confidence.
Quantitative easing has had a limited effect on the markets and the acquisition of large stakes in Northern Rock, Lloyds Banking Group and RBS has not resulted in these banks being prolific mortgage lenders. The Government should concentrate on reducing the deficit, keeping interest rates low and hope that global investor confidence picks up over the next couple of years.
Lovey: As much as I am glad to see the back of the last Government, my view on the outlook for lending has not changed a great deal. Government can only do so much and the new coalition will have more pressing matters to occupy its mind than boosting lending to the mortgage market.
It is, of course, a matter of confidence in the wholesale market that has seen investors take a bath over the past two years and the Government cannot go on underwriting lenders’ bond debts.
The real cost of funding is likely to remain high relative to before the crash and the huge amount of Government debt that needs to be done will add to the crowding out of finance to the mortgage market. Add to this the amount of £178bn worth of funding that needs to be repaid to the Government in 2011/2012 and £134bn in 2012/2013, the outlook for the next few years will be tough.
Home of Choice has become the fourth mortgage network to go into administration in the last 18 months. Many mortgage advisers have been forced out of business due to their failing network. While these are commercial matters, should the FSA take a more proactive approach in dealing with networks in jeopardy?
Cornell: Fortunately, it would appear the appointed reps of Home of Choice will be paid. The entire industry needs to sit down and work out a way of monitoring networks. I am sure the FSA can keep an eye on them but it cannot interfere commercially and so could not insist that a
It is becoming very difficult for appointed
representatives to know which networks they can trust, so maybe the networks should be forced to issue monthly management accounts. However, as time goes on, hopefully networks’ cashflow will improve.
Fleming-Duffy: The industry should not rely on the FSA, a regulator, to save businesses that fail to embrace change. Over the last three years, more than 50 per cent of mortgage advisers have left the industry, taking numbers down from 30,000 to around 12,000. This is mainly due to the fact that business volumes have reduced as gross lending has fallen sharply, down from £360bn at its peak in 2007 to a forecast £150bn this year. The mortgage industry must look again at the proposition it is offering consumers and look to innovative business practices to ensure they can continue to trade in this market.
There was a collective loss of common sense among lenders, advisers and consumers and we now need to work together to rebuild trust in the industry
Lovey: Yes, it should but, to date, the FSA has not been proactive in a way that protects the ARs attached to their networks. The writing was on the wall for a long time for several of the networks and the FSA stood by until it was too late.
ARs have been badly let down all round and, for many, it has been the last straw and has forced them out of business. For the remainder, it has been financially painful and the FSA has not been helpful in clearing ARs to join new networks speedily, leading to even more loss of income for them.
Do you agree with the sentiments of Countrywide group chief executive Grenville Turner, who at the recent Building Societies Association Conference accused some mortgage intermediaries of holding lenders hostage before the crunch?
Cornell: I entirely agree with Turner. Lenders were so desperate for new lending that it was cheaper to go through a broker than go directly through the bank. While this was nice, we all now know it was not sustainable. Brokers offer lenders a different distribution strategy, so the intermediary offering should be about a balance of price, service and advice – having an extremely dominant channel is not good. This is not to say I enjoy the extreme levels of dual pricing. Taking into account salaries and premises costs against procuration fees, there should be a reasonable parity.
Fleming-Duffy: Mortgage intermediaries are always obliged to obtain the best deal possible for their clients, so I am not sure I agree with Turner’s statement. The mortgage market was fiercely competitive before the credit crunch and lenders were battling with each other for marketshare.
Intermediaries merely reacted to this, based on what was available across an extensive marketplace. Unfortunately, there seemed to be a collective loss of common sense among lenders, advisers and consumers. We now need to work together to rebuild trust in the industry and learn lessons from the last three years.
Lovey: I read this report with disbelief. Lenders use and abuse the intermediary market as it suits them and when they were all fighting for marketshare it was the lenders, not the intermediaries, who were driving the market.
Arguably, the intermediary market was able to have more of a say than normal to keep the lenders honest and expose some of their sharper practices with fees, etc, but I would totally reject any suggestion that brokers were holding lenders hostage before the crunch. The suggestion that I, for instance, could hold sway over lenders is laughable.
Is it a concern that UK house prices continue to rise while the economy and the mortgage market remains muted?
Cornell: A combination of lack of supply of new housing stock, low interest rates and the lower level of repossessions that one would expect are all funding the current mini-housing boom. For borrowers with large deposits, rates have never been cheaper. Brokers attached to estate agents are enjoying life more than those trying to eke out an existence on remortgages. However, the supply issues and low rates are not sustainable in the long-term, so the problem should fix itself.
Fleming-Duffy: The price rises we are experiencing are temporary as they are mainly due to a severe shortage of houses for sale in the UK. The National Housing Federation reported that the number of new homes being built is at its lowest for 87 years. As large housebuilders return to building again, I am sure we will see prices adjusting.
A rise in interest rates is also looming, possibly to 2 per cent by the end of 2011. This may force some people out of their homes and forced property sales generally lead to lower house prices.
Lovey: It is good old-fashioned supply and demand that has held prices up. The home building programme has fallen even further behind the curve since the recession took hold and the demographics continue to suggest that demand will outstretch supply for the foreseeable future.
However, I do think prices will drift a little as there are indications of more properties coming onto the market. Also, with the abolition of home information packs, speculative sellers are more likely to place their homes on the market to test the water.
Any recovery will be based on innovative products and more money being made available to lend to consumers
It will also be interesting to see if many landlords will try to unload property quickly to try to avoid the proposed increase in capital gains tax, which could add to a weakening in the market, as will sentiment in general once Budget cuts are announced and people remain even more concerned for their jobs.
The Council of Mortgage Lenders recently called for lenders’ staff to be excluded from FSA plans to implement an approved person’s regime into the mortgage sector. Do you think the regulator currently adequately oversees the lenders or should they also be subject to more regulation?
Cornell: I would prefer parity across our whole industry, so those who sell mortgages for the lenders’ direct channels – whether this is advised or non-advised – should be registered as well as intermediaries. I think the regulator needs to ensure borrowers know whether or not they are receiving advice when they go directly to a lender and they must also be aware of the implications of not taking advice.
Fleming-Duffy: These comments from the CML are quite odd. Consumers should expect to deal with a professional mortgage adviser, whether they are speaking directly to a lender or to a broker, and surely the definitions and requirements of a professional adviser should be the same across the entire industry. Any recovery will be based on innovative products and more money being made available to lend to consumers, not by excluding lenders’ staff from the approved persons’ regime.
Lovey: They would do wouldn’t they as the Council of Mortgage Lenders represents the lenders. It is so blatant a piece of arrogance that I believe the CML cannot be serious.
Most of the misselling comes from the lenders’ staff, where the public often think they are getting advice when they are in fact not seeing an adviser but a salesperson. In order to have a level playing field and for the protection of the public, it would bring the FSA and its regulation of the market into disrepute if they agreed to this CML request.