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Carry on cabby

Last week’s bank rate reduction and the onset of quantitative easing will increase conjecture as to when the mortgage industry will finally begin to see signs of recovery.

Opinions are varied and last Thursday night as I journeyed home from the Money Marketing Awards I was given the benefit of a perspective from an amateur BTL landlord who also happened to be the driver of the black cab I was in.

Derek the Cabby from Lewisham gave me his view – that economic prospects will only pick up once next year’s football World Cup has arrived. If England have qualified and with only a two-hour time zone difference between here and South Africa, sales of plasma TVs, bbq sets and various other discretionary spends will surge. Confidence will have returned. Simple as that.

Now clearly Derek from Lewisham is no Ray Boulger or Melanie Bien but he is no fool. His three buy-to-lets were all skilfully bought via auctions several years ago, in sound locations and funded via base rate trackers. Further fact-finding revealed he had not used a broker and had in his, own words , applied “his own noddle”.

The purpose of this anecdote is to illustrate that no amount of governmental intervention can manipulate consumer thinking and spending patterns unless the consumer is feeling confident about his own situation and specifically his employment prospects. Low interest rates and improved liquidity will not suffice on their own and while the next six months’ economic data on HPI will help to hint at how far we are from the bottom of the house price descent, it is the daily announcements of job losses which are most afflicting prospects of a swift recovery.

With regard to money supply, it is interesting that the Government hopes this can have an effect in as little as three months. Additionally, its increased shareholding in RBS on the condition that £20bn of funding is made available for mortgages and small businesses may combine with its monetary policy to irrigate market infertility by the late summer when many commentators are now suggesting that house prices may have stopped falling. Certainly, by then, it is hoped that the near £50bn of lending being pledged by the Government’s lenders over the next 18 months will have started to granulate down to consumers.

In the meantime, intermediary businesses will continue to not only reduce overheads but some will also seek out distribution deals which may bring welcome cashflow respite. Recent announcements may be a clear indication that, in times of necessity, the virtues of a truly independent approach to mortgage protection advice become less pious.

Such sole-tie nuptials should become a win-win for each participant. Firms will doubtless benefit from an enhanced commission arrangement and immediate marketing allowances while the insurance company in question will enjoy the near- record levels of cross-sale penetration which most businesses are experiencing as a result of borrowers being more risk-averse and mortgage brokers themselves discovering that doing the job properly involves more than just waiting for a mortgage procuration fee to be paid.

Kevin Duffy is managing director of Mortgageforce

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