Will there be a mortgage downturn and what are the implications?
Much like house price movements, shifts in mortgage volumes need to be considered in perspective. Some London properties have seen a 15 per cent drop in value recently but have benefited from an increase of 30 per cent during the last 12 months. So have prices dropped by 15 per cent or have they risen by 15 per cent? Mortgage volumes have risen steeply over recent years, so any reduction in lending volumes this year should be seen in the proper perspective and context.
When UK gross lending reached a staggering £110bn in 1999, some commentators predicted that lending volumes would steady off to between 5 per cent and 10 per cent annual growth. If these predictions were even close to accurate, we would now be sitting on a market worth somewhere close to £150bn. The reality is a mortgage market now well in excess of £200bn. Despite some of the most challenging economic conditions for decades. I don't know anyone who predicted such a staggering leap forward.
There is much talk at the moment of mortgage lending levels levelling off', cooling down, holding steady and even declining in 2003. While it's rare to hear any current predictions of significant growth, the actual shape of business volumes is extremely difficult to predict. It is possible that some commentators privately hope that results are at least sustained or improved upon, yet fear that they will be tempting fate.
One top-five lender commented to me: “The market proved to be exceptionally strong during 2002, with remortgaging at extraordinary levels. It is impossible to predict business volumes with certainty but it is likely that the market will cool slightly.”
I believe we are likely to see a small reduction in mortgage volumes – perhaps no more than a 5 per cent fall but thousands of fewer transactions which will clearly have some impact on the market.
Given that at least half of mortgages are originated by brokers, you could argue that brokers may lose 50,000 cases in total this year, by just a 5 per cent downturn. Divide that by 12,000 registered mortgage broker firms and every firm loses four cases this year. Even a 10 per cent market downturn and a reduction of eight cases per firm is hardly the biggest threat to mortgage intermediation this decade.
Perhaps it is in the reassuring context of our two million mortgage transactions each year that most brokers and lenders appear to have no real concern about falling mortgage volumes.
Mortgageforce surveyed 50 per cent of its brokers and found that 85 per cent believed they would write a similar number of mortgages this year as last year. So very few business writers seem to have any fears about significant business loss.
Specialist broker Jim White agrees with me that the market is bound to see some slowdown. “The ever increasing likelihood of war in Iraq is likely to unsettle the market in the short term, as uncertainty always breeds caution, which is understandable,” he says.
If business should level off' or even fall, will brokers throughout the UK share the brunt of any downturn? Or does it follow that regions which suffer negative house price inflation see fewer mortgage transactions?
Paul Rumbold, head of mortgages for Co-operative Bank doubts that a major market drop will occur but suspects that regional variations are likely. “I feel that a notable downturn is unlikely, with the exception of a few areas of the country, for instance the more expensive areas of Central London and the South-east.”
Balancing the view that levels are more likely to fall, Jim White's Mortgage Solutions' Jim White says: “With world stockmarkets projected by Reuters and ABN Amro to remain in bear market scenario, it is entirely possible that more wealth will be directed to investment in commercial and residential property.”
Given the relative consistency of the UK market, we see another year of prosperity for professional mortgage intermediaries.
Robert Clifford is chief executive at national broker franchise, mortgageforce