It saw Malone call on mortgage brokers to understand and make allowances for the huge strain the credit crunch is placing on lenders and to encourage clients to save more regularly with lenders to alleviate some of the liquidity problems.
Malone says: “The open letter was an honest approach by seven of the major distributors in the UK trying to assist the lending fraternity and give an indication to intermediaries that the marketplace we are in is not as straightforward for one group of people to resolve.
“Of course, we understand intermediaries’ dissatisfaction about products being withdrawn at a moment’s notice. Of course, we understand intermediaries’ dissatisfaction over dual-pricing and, of course, we understand their dissatisfaction at not being able to place a mortgage which they would have been able to do in the past. But some of these warning signs were being mentioned some considerable time ago.
“Nobody likes to think they are going to have to change their business model, their attitude to business or the way their clients are able to get mortgage funding but the harsh facts is that that is the reality.”
Malone says since the letter was written, all the major lenders have told him that even during this period, the business volumes coming through the intermediary market has been greater than it was in real terms last year. He says the lenders also say they are not doing that much business through their branches.
“I know that statement is probably difficult for the intermediary to believe but at no time have I or any of the other signatories of that letter have had any inkling that the high-street lenders have formed a cartel with plans to cut the intermediary out of the market.”
Malone says part of the message of the letter was to encourage intermediaries to get their clients to save more with the high-street lenders in a bid to ease the liquidity problems. He believes the lending sector is only just now realising how bad this year will be.
He says: “Nobody likes using the word recession but, having been in the eyes of the storm back in the 1970s and 1990s, you have to face reality.”
Malone admits he does not have a solution. “Once we know the full extent of some of the lending then one would expect investors to gain confidence and hopefully come back in to restore the marketplace. We still have a long way to go.”
He says his prediction last year that UK lending will be between £250bn and £275bn for 2008 still stands. “I am still of that opinion and I think that my view is becoming the norm in the industry. We know on the purchase side that every major estate agent is reporting they are 40-50 per cent down on transactions. The normal number we would do in a year was around £1.2bn. We are now somewhere between £500m to £600m.”
Malone says the recent conditions in the market have emphasised that the two-year fix is not a panacea.
“You have to take the longer view with your clients. Many of us know from the Council of Mortgage Lenders’ statistics that the majority of people will stay in a house from any time between seven to nine years so to keep moving a client every two years can be a false economy.
“I think we are beginning to see the advice that was given two years ago possibly not being the most appropriate advice for today’s client.”
He believes arrears and repossessions will rise sharply next year. “We all know that arrears and repossessions take a good year to 18 months after the eye of the storm to fully materialise. I think it is fair to say that when we get into the early part of next year there will be a lot of borrowers with a lot of stress in their finances.”
Malone is concerned about how lenders are treating arrears and repossessions in the buy-to-let sector and “whether or not they are actually disclosing their arrears and repossessions, because in many instances they are not a regulated lending proposition”.
In the near future, Malone considers that the Bank of England will lay down guidelines as to what type of lending it wants to see over the next couple of years.
He adds: “The only one thing that I would like to see introduced by the Government is to have a moratorium on stamp duty for first-time buyers up to a level of £250,000.
“It could give some kind of incentive to the first-time buyer sector. Otherwise, we will have created a number of newbuild ghettos in the inner cities.”
Malone believes that by 2011 the industry will have a much clearer picture of the new mortgage market and says Premier Mortgage Service has already started to review its proposition. He says: “We have hired consultants to look at our technology proposition and the way we can engage with lenders and intermediaries. We know that the PMS we set up 11 years ago is likely to be a different proposition in three years time.”