View more on these topics

Inside edge

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&#39t know anyone who predicted such a staggering leap forward.

There is much talk at the moment of mortgage lending levels levelling off&#39, cooling down, holding steady and even declining in 2003. While it&#39s 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&#39 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&#39s Mortgage Solutions&#39 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

Recommended

NU brings CI premiums down in line with rivals

Norwich Union is bringing critical-illness cover premiums into line with competitors only two months after its dramatic price increase.Rivals made smaller increases and some even cut premiums, leaving NU out in the cold after its 40 per cent rise in premiums. It says sales fell after it increased premiums.The U-turn means that combined term and […]

Legal & General bond grows and protects

Legal & General has established the index growth and protection plan, a guaranteed equity bond that is linked to the FTSE 100 index for a term of five and a half years. The bond guarantees the return of all the original capital at the end of the term regardless of the performance of the index. […]

Building society lending up 27%

Building society lending is continuing to grow, with gross advances up 27 per cent to £3.3bn in January from £2.1bn last January, according to the Building Societies Association.Net advances, representing total mortgage balances outstanding, grew 134 per cent to £1.3bn in January 2003 from £569m in January 2002.Approvals of loans agreed but not yet made […]

The pick of the PMI

Over the last few years, menu-based flexible life and healthcare protection packages have won the hearts of IFAs and their clients. Advisers can mix and match various components to meet initial needs and then adjust them later to fit lifestyle changes. The good news is that similar flexibility is now available within the PMI field.An […]

Identifying best-in-class UK stocks — Mark Martin, Neptune UK Opportunities Fund

FE Alpha Manager Mark Martin assumed management of the multi-cap UK Opportunities Fund at the beginning of February. As manager of the highly regarded UK Mid Cap Fund, Martin has begun restructuring the new portfolio to focus on our very best UK stock ideas from across the FTSE All-Share Index. In this video, update Martin addresses:

– Themes informing the UK Opportunities Fund
– The multi-cap structure of the fund
– UK equity valuations

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com