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The numbers game

Philip Scott finds that although there may be forecasts of a market decline on the way, brokers are well placed to continue to thrive.

After five boom years, the UK mortgage market could be coming off the boil.

Datamonitor believes that lending will fall by 10 per cent over the next three years as the property market and house price growth stall.

The Datamonitor report says the mortgage industry faces new challenges from reshaping of the distribution landscape and a more competitive market.

Legal & General director, housing marketing, Stephen Smith believes Datamonitor could be right but he says there might be a silver lining for brokers. He says: “I think the consequences of regulation plays to the strengths of mortgage brokers – encouragement by the FSA for consumers to shop around to compare and contrast deals. This is ideally suited to a mortgage broking operation rather than lenders. Our view is we will see more become appointed representatives of networks rather than directly authorised, fewer one-man-bands and more bigger firms.”

Platform sales and marketing director Guy Batchelor, admits that a 10 per cent decline does not sound unrealistic. “Potentially, there could be fewer brokers but we are very resourceful in the mortgage marketplace and one of the things we do keep doing is inventing new products or finding different themes of new products,” he says.

Rationalisation is another theme that looks inevitable inevitability. Birmingham Midshires head of sales Alan Cleary says: “The past five years have been a very good time for distributors as many set up during the boom market so many will have big question marks over whether their model can withstand a declining market.”

Cleary thinks that distributors which have made their plans using conservative assumptions should be able to weather a storm. He adds: “But there will be those who sprung up on the back of the boom market who will suffer. A number of packagers arrived over the past few years who do not add a lot of value to the mortgage chain and they have substantial cost bases. I think that many of them will have a major problem.”

Rooftop Mortgages marketing director Alison Beech says the first-time buyer market is stagnant and there are “hot spots where things have dropped off” but she is far from convinced by the Datamonitor forecasts. Rooftop operates exclusively through packagers and she believes that if there is a decline it would not affect the packaging market overall although she would anticipate some level of consolidation and casualties in the market.

She explains: “I think there will be two distinct areas of packagers who will survive. They will be niche and have speciality and close relationships which might be geographic relationships with a particular network or parti- cular group of distributors/ intermediaries.

“Then there will be those packagers who can bring volume. Those sort of packagers will work closely with their lenders to understand their needs and design products and distribution which meet lender requirements. Those positioned in neither camp will end up with more serious difficulty.”

Mortgage Intelligence managing director Sally Laker is also sceptical about the Datamonitor claims but she believes there will be consolidation, particularly in the network arena. She says: “There are networks which started from scratch with no track record and with no established distribution operation.”

Batchelor believes a slowing market could bring some opportunities for distributors in areas such as equity release. He says: “You could say that potentially the equity-release market which everyone is getting so excited about has not really grown yet. It could really come of age over the next three years, I think the equity-release product is one sold by IFAs and some mortgage brokers but it is potentially the IFA market who will step into that. The equity-release market was only worth something in the region of 2bn-2.5bn in 2004 and the expectation is there could be a marketplace of up to 400bn in the next four to five years.”

Batchelor also notes that he is seeing many prime-type products with incentives being offered in the non-conforming sector. “That is certainly an area in where if we do have a falling house-price market, I think the non-conforming market will expand with products which are more transparent and do mirror the prime marketplace,” he says.

Laker believes many brokers will look to service their current clients, perhaps in terms of remortgaging. She says: “Brokers may expand their business into other products areas such as mortgage-related insurance. The mortgage market is very innova- tive. Brokers will be looking to maximise income but we should not underestimate lend- ers – they will also be tackling the issue.”

Batchelor also says the re-mortgage market has possibilities. He says: “The nature of the products we have sold as an industry over the past few years tend really to be shorter-term fixes and discounts and the most popular products over the past few years have been things such as two and three-year trackers at fixed rates so there is always an opportunity there but it is going to be interesting.”

In terms of lenders, Datamonitor’s study says base rate rises followed by a more stable rate environment will limit rate-based remortgaging. It concludes that fewer people will look to withdraw equity as house prices slow and remortgaging will decline by 6 per cent to 115bn in 2007.

Smith says: “There may be consolidation exercise among mortgage brokers but broker community is likely to be more dynamic and flexible and responsive to market changes than lenders. I would say good brokers will thrive even in a poorer market.”

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