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Market comes to a turning point

After another week or so of Government ineptitude, it is far too easy to focus on the authorities so let us turn our attention to the emerging market themes.

With the latest set of lending figures out, it is clear that we are truly entering new territory this year. Gross lending may not even hit 150bn – that is 200bn less than its peak just two years ago. Bank rate is at 1 per cent and those lenders that have been sluggish following base rate down with their SVRs are now being forced to follow the latest drop for fear of being in breach of their terms and conditions.

Shame on you Halifax – and other taxpayer-owned or majority-share-owned lenders. In fact, I am surprised that that good old fashioned word – usury – has not become a lot more commonplace in the popular tabloids in describing the rates at which taxpayer- owned lenders are now charging existing prime borrowers for their mortgages.

At 1 per cent, base swap rates (the rates at which fixed- rate loans are priced off) have also continued their fall. Two-year swaps are at around 2 per cent and five year at circa 3 per cent with more to come to give lenders a huge opportunity to effectively force borrowers to change their mortgage habits and in doing so contribute to the structural changes in the market.

Whatever they say in public, lenders will always prefer borrowers on fixed rates and the longer the better. Historically, fixed-rate loans have always been below 20 per cent of the market and, within that, massively skewed to two years.

The remortgage market is now effectively dead from a combination of base rate trackers and SVRs undercutting new business rates, property values falling and surveyors’ caution moving borrowers up the LTV scale.

As existing borrowers come to the end of their original deals, swap rates will allow lenders to offer existing borrowers very attractive long-term fixed rates.

From a treating customers fairly perspective, it is also the logical choice – locking into long-term fixed rates at the bottom of the interest rate cycleWith effectively only six large lenders now remaining, their strategy will shortly become clearer too. Some have already shown their hand.

Only two of these lenders are treating the intermediary market the same as their direct distribution, with the others using a mix of differential pricing, product term differentiation and point- blank no interest in broker fees/distribution. Is HSBC’s strategy about to become the norm in 2009? Price comparison websites continue usefully to tell us the obvious, with month on month reductions in the number of products being offered.

Then mix this combination with the regulator’s spoon – an agenda loosely based at the moment on reducing consumer choice so it can better regulate what’s left – and the outcome? It really does feel like 2009 will become the turning point for the intermediary mortgage market. Already representing significantly less than 50 per cent of the market, we all have to worry for its survival.

No remortgages, low rates with no competition for new borrowers, the moving away from variable rates en masse to fixed rates, effectively an execution-only service market requirement as existing borrowers are invited to switch to a long-term fixed rate when their deal ends/move off SVR deal, what need for price- comparison websites – and the conclusion?

There is currently no market need for a mortgage intermediaryI never thought I would be saying it. Yes, I know brokers are innovative, resilient, honest, etc, etc, but that is not the point.

The only hope for the mortgage intermediary is either to diversify so much as to be unrecognisable as a mortgage broker or, as with the wider economy, pray that the wholesale/secondary markets for mortgage-backed securities open soon. Very soon.

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