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Tough get going

During the quiet month of August, appetite for news on the housing market has not let up despite most property owners now holding an asset that has fallen in value.

With such an intense demand for information, it is important to ensure the commentary and underlying data are correct. So the recent publication of product sales data by the FSA and gross lending figures by the Council of Mortgage Lenders is very welcome. The FSA report provides data on all mortgage sales going back to 2005 and, combined with CML figures, it shows some marked changes in the market over the last five years.

There has been a notable decline in choice of lender. There are 127 mortgage lenders in the market today compared with more than 170 in mid-2007. The top 10 lenders now account for 85 per cent of all sales. Given the shrinking number of providers, this means their share of the market has grown.

During the same period – and despite a sustained reduction in interest rates – the spread for lenders is up from an average of 0.35 per cent to 3.4 per cent. The heightened perceptions of credit risk and the impact of reduced volumes on fixed costs are used to justify this, yet recent announcements about retail lending show lenders are enjoying greater profitability.

CML figures confirm a reduction in lending volumes. The forecast for gross advances this year has been revised to £140bn, compared with £253bn in 2008 and £363bn in 2007.

That consumers are willing to pay fees is a strong indication that professional and quality advice continues to be highly prized by the customer

Concern remains over mortgage sales where the method for repaying the loan in full remains unclear. The FSA has repeatedly highlighted this issue to lenders and advisers.

Greater clarity is needed on this topic, not least to protect or advise borrowers who buy a property with an interest-only loan but experience difficulties if they have to remortgage in a tight lending market or fail to make proper provision for the capital repayment.

The figures disclose that in the past three years, overall sales by intermediaries have fallen to half of the total sales, meaning the volume of transactions expected for this year will only be around £70bn.

This is a sharp fall from previous years and has implications for the profitability of intermediary firms and networks.

However, a stark contrast remains between the nature of intermediary and lender sales. Around 90 per cent of intermediary sales are on an advised basis, compared with only 50 per cent of sales by lenders, so it is not surprising that a recent survey suggested that 64 per cent of intermediary firms now charge fees.

That consumers are willing to pay fees is a strong indication that professional and quality advice continues to be highly prized by the customer. Good advice and ethical behaviour never go out of fashion but they become increasingly valuable when times are tough.

Although the current mortgage market poses many challenges, it also provides advisers and intermediaries with an opportunity to prove the worth of expertise and professional standards.

Richard Fox is chief executive of the Chartered Insurance Institute’s Society of Mortgage Professionals

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