The back books of lenders are now at such low rates they will not be making sufficient money on those deals, and there is no chance of homeowners moving, because with rates so low and the availability of funds so limited they may as well stay put.
That stops the flow of funds and paralyses the remortgage market which accounted for 45 per cent of total lending a few years ago. We now have some borrowers on trackers well below base rate. If you need to remortgage because you want additional cash to improve your property, the chances are you will need too high a loan to value against a falling property value, so you may be stuck too.
If that wasn’t bad enough, those very lenders that used their savings offerings to fund their mortgages, are now being forced to offer rates that are below inflation, so why would consumers want to save?
My point here is that a sustained period of low interest rates has in my opinion been one of the reasons that we are in this mess, and reducing interest rates even further has just made the situation even worse.
The mortgage market is the lifeblood of the economy and repeated government efforts to rejuvenate it have failed or in some cases made the situation even worse. Furthermore, the partly nationalised lenders are likely to continue with their dual pricing policy as they need to demonstrate to the government that they are lending and at attractive rates but they can’t allow brokers access to these products for fear of being swamped.
As a result, brokers are being squeezed once again. The Government does not seem to have grasped the fact the availability of funds has reduced so significantly and by lowering interest rates again and making saving unattractive, they are cutting off the only avenue that was producing at least some funding.
How can the Government say that lenders must start lending, unless they have absolutely no idea what is happening in the mortgage market, and how funding works. This lack of understanding is one of the key problems.
On a more positive note, having spoken to a number of brokers over the last week or so, they are seeing a few green shoots emerging with regard to mortgage applications.
They have also seen an increase in the amount of insurance business. We have seen insurance income rise to its highest-ever level, so the training sessions and encouragement have all paid off.
It is proven if you have successfully sold a mortgage to someone and done a great job, they trust you, and will be far more likely to buy something else from you than a new client would and that also gives you the chance to maximise the best free marketing strategy there is – referrals. So while the overall mortgage market continues to operate on red alert, there are signs that smart, proactive brokers are refusing to be kicked while they are down and that the fittest will continue to survive and some may even prosper.
Sally Laker is managing director of Mortgage Intelligence