Dominik Lipnicki, Director, Your Mortgage Decisions
Ian Gray, Mortgage broker, Largemortgageloans.co.uk
Mike Fitzgerald, Sales and marketing director, The Emba Group
The Council of Mortgage Lenders reported the worst monthly lending figure for 10 years in August. What is behind the drop in mortgage lending?
Lipnick: It is a plethora of issues coming together. The housing market has dropped for three months in a row and confidence is shot to bits. Rates are so low that people are not inclined to remortgage and are reluctant to buy with the Government cuts coming. It is all bad news and we are almost talking ourselves into another dip.
Gray: The problem is that lending figures depend on two things – the supply of loans and the demand for them. At the start of the credit crunch you had the cut-off of supply but you always had demand. The banks are always lending at low loan to value, so even in the height of the crunch you could always get a mortgage. Then the demand tailed off and now here we are, three years on, with the same low supply of credit but because there is so much doom and gloom you do not have the demand for credit.
Fitzgerald: It is a funding problem. We are seeing people with great credit scores refused a mortgage for a nothing credit-score problem. There will be social problems if this continues. You cannot keep the lid on people trying to move – young people cannot get on the ladder and even divorced people are unable to move apart. This is massive, much bigger than broker problems, and it will take a cross-party agreement to get the market moving again.
In Lord Adair Turner’s Mansion House speech recently, he raised the prospect of a UK regulator being given powers to intervene and cap mortgage lending if it sees a credit bubble developing. Do you think the regulator should be given the power to intervene at this level?
Lipnick: I do not think the FSA should be allowed to have these sort of powers and I am not the only one to think that. I have not heard one expert say that would be a good idea. It would only stifle a market and that is the last thing we need. No one sees a bubble so how do you determine if the market is on its way up? How long do you wait? On paper there are benefits but in reality it would not work. It would be a nightmare.
Gray: It is appropriate to cap LTVs in good times because we have seen that if you give banks a free rein they will abuse things, so there has to be more controls. However, there should not be caps on properties as was mentioned by Turner. The housing bubble was fuelled by lax lending. What would control a bubble is banning the irresponsible mortgage policies where buy-to-let mortgages are only based on rental income. There should not be complete controls, though, we are not a complete socialist state.
Fitzgerald: Let’s turn the clock back and do low LTV, no interest-only. Then why not get really draconian and ban tracker rates because they might go down? Let’s do that and look forward to a lost decade like in Japan. We are either in a free market or we are not. We let unlimited bad credit into the market and it is right that we should stop that. Let people take time off and repair their credit before they borrow again.
With more than 40 per cent of mortgages now sold direct to consumers and one in four direct mortgages sold through HSBC, how concerning is it for one lender to have such a dominant position?
Lipnick: In the short term, it does have an effect on brokers, but over the long term this is not a problem. People will still choose to go to brokers and we will always represent the independent view. HSBC is slightly headline-grabbing because you have to ask how many people qualify for its deals? What sort of LTVs are we talking about here and who are the loans suitable for? There are still thousands of schemes and millions of clients out there so, if anything, people need brokers more than ever.
Gray: It is a concern because you have to wonder what sort of advice all those borrowers are getting when they walk into the HSBC branch. They are very prescriptive loans and they may have a low rate but that is not everything. There may also be something in the structure of the product that might not be appropriate. Do those in-store advisers have the expertise to advise people properly?
Fitzgerald: It all comes back to the fact that the smaller lenders are going to have problems with the banking requirements. It is a shame there is not more diversification. It would be good to see more choice regardless of whether it is direct or through intermediaries. I would like to see lenders coming back because we need more competition. While HSBC has this hold on the market it is bad news but that is nothing to do with the fact that they do not go through brokers.
CML director general Michael Coogan recently said the MMR would result in negative net lending over the long term and could be seen as an attempt by regulators to constrain mortgage lending. Do you agree that the MMR will lead to a long-term reduction in mortgage lending?
Lipnick: It may have that outcome but the MMR might have a lot of positive effects or the industry. It will bring professionalism and some of those who should not be in this sector will leave. Whenever you get more regulation and more intrusive regulation, business will suffer. But brokers who can meet the regulations will do well regardless of the lenders.
Gray: I do not think so. In this country, there is such a drive to capitalist competition that there needs to be regulation. The credit crunch proved that we need more because the sky nearly fell in. I do not want to lie awake at night worrying that another crunch will come along, I would rather just do a bit less business in a stable market. The MMR has some good ideas – making sure lenders have higher capital reserves for lending, for example, is a good idea and will be a self-regulating act, ensuring lending stays sensible. Of course, the lenders do not like this because it will cost them more money.
Fitzgerald: The FSA review is going to make things worse and it will be another nail in the coffin. It was not 95 per cent LTV loans that killed everything but dubious bankers buying and selling dodgy piles of loans. More regulation is not the answer – 20 years ago we did not have regulation and people made more on investments and there was less mortgage fraud than there is now. Regulation is not a panacea, it just masks the problems. If funding is a problem now, give it two years. We will have more social unrest without helping people move and buy homes.