In the last month alone, the mortgage market has seen the number of products available across residential and buy to let plummet from 7,726 to 5,700, according to eMoneyfacts.co.uk.
The big lenders continue to cut loan to value ratios and withdraw from some sectors and the smaller building societies have also begun to feel the heat. Societies such as Melton Mowbray, Holmesdale, Newbury and Tipton & Coseley have all restricted lending to local areas while Earl Shilton, Bath and Monmouthshire Building Societies have withdrawn their mortgage ranges.
At a recent conference, Council of Mortgage Lenders director general Michael Coogan admitted that withdrawing so many products has damaged the market.
Coogan said at the Great Housing Market debate that lenders were being forced into short-term decisions by the market conditions.
He said: “If every lender acts in a way which protects their own interest, we will end up with the worst outcome for the market overall but they are all having to take short-term responses to an environment changing daily.”
Coogan said lenders are likely to focus on loans which are lower risk and these loans would be remortgages rather than purchases. According to research by the British Bankers’ Association for mortgage behaviour in February, remortgages now account for nearly half of all new mortgages granted by banks.
The Mortgage Practitioner sole practitioner Danny Lovey says: “It is very hard at the moment. It has only been the last month when there has been a big problem with the prime mortgage market. Everything is happening at the same time with lenders making loan, loan to value and rate changes.”
Brentchase Financial Services mortgage specialist Mike Fitzgerald says brokers now have do a lot more research to find their clients the best products.
Fitzgerald points out that on Trigold there are now only 6,000 products whereas it was not long ago that the sourcing system had over 22,000 products.
eMoneyfacts.co.uk mortgage analyst Denise Harvey says: “It seems there is no stopping it. Over the last two weeks, lenders have been even more ruthless in withdrawing products from the market and tightening their criteria.”
“Until a couple of weeks ago, it seemed that smaller building societies had escaped the worst. By funding their lending through deposits, they appeared to be immune from the problems facing the funding markets but the last two weeks have shown a very different story.”
“Due to bigger institutions increasing rates and becoming more reluctant to appear competitive, smaller lenders have seen an increase in demand which is something they neither want nor can cope with. Traditionally, local building societies have attracted the majority of their business from the local area. In order to maintain presence and competitiveness in that area, they are having to close people outside the region.”
All Types of Mortgages chairman Vic Jannels believes balance-sheet lenders may be guilty of collective “over-caution” and questions if it is a deliberate ploy.
He says a number of balance-sheet lenders have capital solvency ratios that are far higher than the FSA’s minimum requirement.
Jannels believes that if more options are made available to borrowers, there will be a rise in consumer and investor confidence, leading to increased investment in the mortgage market.
Jannels says: “Many of the current rates offered by balance-sheet lenders are acting as a deterrent to borrowers, as they are simply unaffordable. There is currently a distinct lack of competition within the market and an increase in the number of competitive mortgage products being offered by balance-sheet lenders can only have a positive effect.”
He says if there is a rise in confidence, the market could see an increase in the number of securitised portfolios being purchased by investors which would ease the pressure on securitised lenders and generate more competitive rate for borrowers.
Jannels says the only reason not to take this route is if lenders are holding out due to concern over future problems.
It is clear that mortgage intermediaries will have to start looking at selling more general insurance and protection products as a way of increasing their income while the crunch continues.
Abbey is one lender that is set on encouraging mortgage intermediaries to use its general insurance products. At its key account conference last week, head of insurance sales and marketing Liz Sandberg said the company aims to increase revenue from general insurance by 15 per cent this year.
She pointed out that, on average, 80 per cent of mortgage cases coming from its key account partners do not have Abbey’s GI product and said this is a huge opportunity for brokers to increase their income.
Fitzgerald believes all lenders are going to have to sell GI but warns that brokers must ensure they source the most competitive deals for clients.