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Home to roost

The deaths of most mortgage products have been heralded over the last few weeks as deals are withdrawn and more lenders leave the table. Last week, Moneyfacts revealed there are only 3,469 products left in the UK, down from more than 13,000 in August 2007. But are all the mortgage sectors still breathing and what can we expect in the future? Money Marketing asked advisers and mortgage providers for their thoughts on the current state of mortgage products.

Prime

Brentchase Financial managing director Mike Fitzgerald says: “Prime mortgages were going back down up until a few weeks ago and now they are going up again. But the big issue with prime is the loan to values – they are going down because it is the only way lenders can offer the deals.”

A Skipton spokesman says: “Prime will stay roughly where it is. With rates it is finger in the air stuff because they move with the economy but it is going to be higher deposits that will define prime as time goes on. The plc model will shift towards the mutual one as savings become king. The emerging ‘superbanks’ are going to get a foothold with increased savings, but mutuals are still the trustworthy model for savers – building society deposits are up 40 per cent. Safe is becoming the new sexy in prime lending.”

Fitzgerald disagrees it is going to be the mutuals who see increased prime margins: “Every prime deal we put through seems to be from one of the big boys and it is going to stay that way. Smaller players will find it harder to buy prime rates.”

Sub-prime

Kensington marketing director Ian Giles says: “Right now there is no funding appetite for sub-prime and it is difficult to see when that appetite will return. There is no significant near-prime dealing. There is a large demand: the only question is how demand will fit with risk appetites of lenders given the experiences of the last year.”

London & Country mortgage expert David Hollingworth echoes the dire sentiments. He says: “There is not much sub-prime left and intermediaries are not holding their breath for a return. It’s toughest on the borrowers because there is demand but not many options. For many brokers, it is now just down to managing sub-prime clients in distress.”

Giles says: “No one can put an exact number on when sub-prime will return but we are probably looking at 2010 or 2011.”

First-time buyer

Savills director Melanie Bien says: “The first-time buyer market is worse than it has been for a long while, which is ironic in the face of more affordable house prices. Deposits are hard to attain. If you have only 5 or 10 per cent there are few opportunities for you as a first-timer.”

A spokesman for HSBC says: “The problem with first-time buyers isn’t necessarily that they cannot get finance, it’s that they are waiting for house prices to fall. We haven’t changed our first-time buyer offering for three years, but business is down. For us it is not a case of lending restrictions, rather first-time buyers feel more vulnerable and are waiting for affordability to level out.”

First-time buyers are always at the forefront of political debate, and Bien feels this will help products.

“There was a pressure to help first-time buyers before the crunch and there is going to be pressure when it is over. The Government needs to put its money where its mouth is.”

HSBC says: “The Government could give more money to the sector but that is not going to solve the problem. Young people have more debts and house prices are higher than ever.”

Self-cert

Hamptons Mortgages managing director Jonathan Cornell notes: “The supply of self-cert mortgages is radically down and banks are getting more nervous. There are competitive rates out there but they are expensive.”

Colin Snowdon, former Wave chief executive, says the media vilification of self-cert together with the US crisis has not helped matters.

“People look for an easy explanation for difficult circumstances. Self-cert has become a scapegoat. It will survive as it is an important product that works if done right. Many of its problems have been due to administration. I lent self-cert for many years and arrears were never a problem.”

Cornell says: “Self-cert does have a future, but we have to wait for supply to return. There is a demand and that will grow as more people are forced to become self-employed in the face of redundancies. It’s a bitter irony that the credit crunch has restricted the product but could increase the demand.”

Offset

The Mortgage Broker Ltd managing director Darren Pescod says: “There is a lot of concern with people looking at offset. They want to know their savings will be safe amid the turmoil. But demand is stronger than ever.”

Woolwich head of lending Andy Gray says: “Offset is more popular than ever as people want to balance their savings and mortgages. They are worried about the safety of their money but offset is safe.”

Pescod adds: “There is the potential for growth in this sector, especially with mutuals, and there will be no immediate shrinkage.”

Gray says: “There is the chance of more lenders entering this market, but the key is the infrastructure. The true offset deals are those that work with savings and current accounts. It’s getting that system to work that is the challenge.”

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What challenging and interesting times we live in. Many of my IFA clients of old who have time to follow the rather excitable press ask me in rather dramatic terms if we are “approaching the end of the world”. I try not to get on my soap box and point out the more pertinent issues that may seal the world’s demise such as climate change and lack of sustainability. But for the purposes of this analysis, let’s stick to financial matters.

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