First I do not believe that it was ever sustainable for the market to continue to offer such generous rates on generous loan to values in this funding climate. Very few lenders leant solely off their own deposits.
The withdrawal of lenders from 100 per cent and above was inevitable. The withdrawal of rates very quickly is a massive headache for brokers but given that many borrowers coming off generous rates were making a beeline simultaneously for all for the same deals it is probably understandable.
A good mortgage deal can often overwhelm a lender even in normal times. Could lenders have done better or done things more smoothly when demand was moving at the sort of speed that could give you whiplash? Maybe, yet could they have done something that was substantially different and would it have made a massive difference to the lives of borrowers and brokers – I am afraid I doubt it. If the demand were there for packages of securitised loans then we could find fault with lenders for their behaviour. But in this environment, even the mighty HBoS has been shown to be more reliant on securitisation than any would have thought.
Some of these actions may allow banks to get the securitisation market spluttering back to life. Instinct says that the first investment bank with the wherewithal and cojones to get back in the market will get a great deal. Hopefully the tipping point for other banks will come very soon after. In such circumstances loans to value may begin to move up again. But this of course also depends on how much the regulator decides to breath down lenders’ necks and this is why this paper has supported calls for at least some sympathy for lenders in the face some strong broker reaction.
However and it is a big however, where the banks may not be playing so fair is where they are still offering mortgages, not where they are retreating from doing so. The rates for those customers may be ungenerous in the extreme – and in some cases it is very difficult to see where additional charges can be justified either. In some cases, customers with what was a perfectly reasonable risk profile only a few months ago suddenly seem to need to pay through the teeth for new loans. Lenders must be very careful that the phrase valued customer does not mutate into valuable customer stuck without any other options who can be milked accordingly. Of course lacking business from say the 100 per cent cutting edge and any other specialist sectors, lenders may wish to make as much as they can from the bits of the market they can lend to. But they risk taking this too far and indeed ripping people off. It is just that line is very hard to call from the outside. We may only really discover if this is the case in six months time if we start to see record results posted. Maybe some lenders know they are making a fortune and are prepared to put up with media and broker condemnation in the future. As I said, regardless of these difficult times – and Money Marketing columnist Nic Cicutti takes a widely different view, I think brokers need to understand up to point. Of course if lenders really are stitching up customers who haven’t a choice and that subsequently becomes clear, they will no doubt pay the price later in the loss of goodwill of brokers and borrowers. With feelings running so high, brokers are sure to cry foul and keep crying foul and eventually lenders may pay the price.
Time for Living Time?
Standing in for an unwell reporter, I was on the receiving end of a briefing from a provider a few weeks ago – a rare thing these days. I met with most of the senior sales team from Living Time in a hotel in Paddington and was pitched possibly as intensively as I ever have in my years as editor.
Joining Dave Harris a former sales and marketing director at Pru in a formidable senior sales line up were Chris Thorndycraft and Mark Duckworth – all clean cut, sharp suited and keen to extol the virtues of Living Time. Even the donnish chief executive Kim Lerche-Thomson was making the pitch arguably with more zeal than the rest. In what felt like a bit of Prudential sales reunion they talked to me about their products and how they were going to change retirement as we know it.
I was told of how they were rolling out their products fully to the IFA market, how it appeared that many advisers wanted their products. They argued that people were taking an annuity and effectively setting in stone their retirement provision much much too early, given changing social and work patterns.
Their offering – they said – was much better for a greater number than the rich man’s solution income drawdown. And don’t dare suggest it is a third way annuity product – they charged too much and delivered too little, they said.
The final point – and this from Lerche-Thomson, who set up Prudential’s annuity business – was that life offices would not be able to move to counter Living Time because to do so would mean cannibalising their own businesses.
And actually, I am nearly convinced about Living Time. If you look at the environment in which these products are competing it is certainly an unsettled one. Third way annuity products still have to make a convincing case not least on price.
Some, and I stress some, advice on income drawdown needs a bit of a dusting down and clearly some of the pots are not really big enough to be managed in this way.
Annuities do seem to offer good value to some people but far too often people opt for their provider’s annuity. In the past I have even heard officials in Downing Street despair at the lack of advice people are receiving about annuitisation. But, as ever, to be totally convinced, I would rather hear from you the advisers. I would love to know what you think about their pitch. Please let me know on firstname.lastname@example.org