How far do you think the housing market is cooling down?
DS: I don't think it is so much cooling down as pausing for a rest. I think there was a danger that in some parts of the country house prices were spiralling out of control. A combination of interest rate inc- reases earlier this year, the abolition of Miras and the extent to which house prices have climbed out of the reach of first-time buyers have all contributed to the current
There are, though, several reasons to be confident about the future of the housing market. Mortgage rates are still
at a historically low level, affordability remains at reasonable levels and unemployment is lower than at any time since 1980. These factors combined should guarantee
a healthy and sustainable growth in the mortgage and housing markets.
AD: Recent figures certainly reflect a slowdown of activity in the housing market although there is every reason to believe that activity levels
in the mortgage market are being sustained. With up to 80 per cent of mortgages on standard variable rates and some lenders with SVRs of over 8 per cent, there is certainly no reason to be pessimistic about the market for lenders committed to bringing attractive, innovative products to those inert borrowers currently in this category. I suspect the market has plateaued and confidence in the economy and the lack of recent rate moves will see good activity levels for the rest of the year.
GB: It is difficult to judge to what extent this has happened. But the number of house purchase transactions has reduced over the last three months, with our estate- agent distribution reporting they now have more properties on their books than purchasers. As regards the rise in property prices, there had to be some degree of adjustment at some time and I feel we
are seeing that now. However, we are not facing a situation similar to the early 1990s.
Do you think a raft of 25-year capped-rate mortgages is set to appear in the market?
AD: No. There are many providers obviously surprised and some were flummoxed at our future perfect proposition but, because of the unique funding proposition, there are only a handful of competitors who could try to emulate us. I am sure many will be trying to introduce a similar offering having been convinced that there is certainly an appetite for the long-term option at the right rate from mortgagees looking for certainty from their financial commitments.
DS: No. The introduction of the first loan of this kind in the mortgage market was always guaranteed to prompt a lot of press and public interest but I do not think this heralds a change in British borrowing habits. I think that only a certain proportion of the market would want to be tied into one lender and one product for a period that long.
There is also the prospect of further falls in UK interest rates as ours converge with those in Europe. If this does happen, then the main benefit of the capped rate will be lost and borrowers are likely to be tempted by the shorter-term products currently available.
GB: Having looked at the new Standard Life offering, it is a very good product although early redemption fees are higher than normal in the early years. However, I do not think many of the more traditional lenders will be able to follow Standard Life Bank's lead as they may face difficulties in funding this type of long-term capped- rate product.
Do you think mortgage lenders becoming mortgage brokers is setting a precedent for the future of the market?
DS: This will depend on consumers and how they choose to arrange their mortgage. I can see the advantages it offers a lender in never having to turn a potential borrower away and the added cross-selling opportunities.
What I am not sure about is whether it will prompt people that would have otherwise chosen to go through another lender, an IFA or the internet to choose the mortgage lender/broker route.
In my opinion, lenders will only decide to go down this route if there is sufficient public demand. This remains to be seen.
AD: No although I do believe the Bradford & Bingley proposition is an interesting one.
I will be following this closely, if for no other reason than to see how the John Charcol element impacts.
GB: No. I feel the IFA, mortgage broker and estate agents will continue as the predominant intermediary but some lenders will set up brokerages to transact the mortgages they would normally turn down in order to first maximise income and, second, to protect existing income streams on other product ranges.
Should packagers be forced to disclose their fees to consumers?
DS: Packagers do seem to be coming increasingly under the spotlight on this issue. It reminds me of the debate about disclosure of procuration fees before the introduction of the mortgage code.
I think the key difference between procuration fees for financial advisers and packaging fees is that, in most cases, the packager does not directly influence the product that the borrower selects. If packagers are forced to disclose the fee, they will face a massive public education exercise to explain the work they undertake in return for the fee and the benefits of their involvement.
AD: As a provider which does not use packagers because of our advanced process procedures, I am observing this debate with interest but not concern. I must admit I have some sympathy with the views of those packagers who could see disclosure as dangerous and could possibly lead to misunderstanding about the merit of the product, assuming high fees mean poorer product.
If a packager is just that and has no contact with the client, I feel disclosure is irrelevant. If the packager is in contact as part of the decision process with clients, I suspect there could be a case for full disclosure. If, however, the packaging service is being provided to a lender as part of a whole basket of services, their impact on the end-user should be determined in isolation and its price and impact on the application should be seen on, I suppose, a need to know basis.
GB: No. Packagers are paid a fee by the lender for the work they undertake for the lender, such as admin, marketing and distribution. They are providing a service for the lender.
What does the future hold for flexible mortgages?
DS: I believe that flexible mortgages are here to stay. All that we may have seen is an end to the hype that heralded their introduction and a bit more realism about how much of the market they will account for.
We launched our first flexible mortgage in May and, despite the fact that we have not advertised this product, we have been receiving a very good level of applications. Not only does the flexibility suit today's lifestyles but the loans also meet a growing demand from consumers that products should be tailored to meet their needs. There is a danger that flexible mortgages are becoming too complex – simplicity is the key.
AD: I honestly believe they have not really started to have an impact on the financial planning of many hundreds of thousands of potential flexible mortgagees. The bulk of completions to date has been on a price basis.
The challenge for flexible providers is to educate the IFA that the flexible mortgage offers them a significant platform for their client's future circumstances. But until we get IFAs to really work their client banks, the full potential and market impact will not be felt. Flexible mortgages are here to stay and will become increasingly important in such financial areas as school fees, tax benefits for the self-employed, early redemption, second homes and the like.
GB: No. The market is still a long way from mutuality. Consumers will increasingly be drawn to this product but they do still need better education on the advantages and disadvantages on this type of mortgage. I feel that there is potential for growth of this feature in all sectors of the mortgage market.
How successful do you expect online mortgages to be in the next six months?
DS: A straw poll of 10 of the country's leading players found that just 937 mortgages had been completed over the internet during the whole of last year. This will undoubtedly increase in line with the growth in internet access and confidence in its use.
Research we have recently undertaken still shows some anxiety among consumers about its security. It is clear, however, that more and more people are including the internet in their decision-mak-ing process, utilising the enhanced access it gives to product information.
The jury is still out on what proportion of applications over the internet will progress towards completion. Because of the nature of the internet and its simplicity, there may be more multiple applications or less commitment from the applicant.
AD: Success is a difficult word to quantify in this context over six months but if you are asking will it be a busy sector, the answer is definitely yes. At Standard Life Bank, our telephone process takes only nine minutes and is instantaneous.
Anybody, however, who ignores the advances in online development does so at their peril. We are certainly having discussions with major developers ensuring we continue to bring innovation to the market. Standard Life Bank is on schedule to provide online mortgages and tracking for IFAs that will complement our current offerings. We need to be confident that what we offer is what the market wants. Like anything else, we will walk before we run.
GB: In the business to consumer sector, consumers will increasingly use sourcing systems to find their ideal mortgage but they will continue to purchase products using
the traditional methods such as face to face or via the tel-ephone. The business to business conduit will become established within six months as brokers and lenders take advantage of the better turn around times, cost savings and ease of use this route brings.