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Will regulation drag down lending?

Since the start of mortgage regulation, both lenders and intermediaries have reported the problems they have suffered with key facts illustrations and other aspects about processing mortgages.

With the widely acknowledged fact that lending has begun to fall and the housing market is entering a gradual slowdown many are asking to what extent will mortgage regulation contribute to this.

The Building Societies Association reports lending has fallen by 58 per cent since the same time last year. Net advances were 1,055m in October 2004, down from 2,525m in October 2003. Approvals fell to 3,021m last month from 4,962m in October last year.

BSA director general Adrian Coles says these figures – when taken with other recent data – confirm there is a real slowdown in the housing market.

Gross lending totalled 23.3bn in October 2004, 17 per cent lower than in October 2003 according to figures from the Council of Mortgage Lenders. The consensus view in the industry is the figures in November will continue to show a downturn so how will this be compounded by regulatory drag?Portman associate director Paul Howard says: “There is no doubt that if you compare The Mortgage Work’s business on October 29 to that on November 1, there is a significant difference.”

Howard says TMW is on track to reach its annual target within the next week but he believes intermediaries are suffering the most with a downturn in business since M-Day.

He says: “Intermediaries will suffer the most. After all, this is their bread and butter. If they can’t process business, they don’t get paid.”

Key Retirement Solutions business development director Dean Mirfin agrees with Howard. He says: “Many lenders have disappointed us all with their lack of readiness.” Similarly C2 Financial sales manager Michael Muir says he has no doubt intermediaries have had to turn business away.

Charcol senior technical manager Ray Boulger says there is absolutely no question regulation will have an impact on lending figures in November. But he would certainly expect CML director general Michael Coogan to make it clear why the figures have fallen so sharply.

Boulger says: “When November’s figures are announced, we must be careful for figures not to be misinterpreted. The mortgage market is dependent on consumers’ confidence.”

But some lenders will almost certainly see a drop in business as they have inevitably had to turn business away. Abbey had to withdraw several of its flexible products before M-Day and thus will be losing business as it has to focus solely on its core range. Similarly, the often disastrous stories circulating on lenders’ technical capabilities and the inefficiency of KFI production is denting the relationship between lenders and their intermediaries.

But BM Solutions says it has been having no such problems, having been able to produce a compliant KFI from October 11, giving the lender an opportunity to iron-out any technical problems before M-Day.

Similarly, the inefficiency of some of the sourcing systems such as Trigold and Mortgage Brain have contributed to intermediaries problems. MMR Financial Planning IFA Alan Barrett says the problems with sourcing systems has resulted in him having to postpone meetings with clients. He has been unable to source information and produce compliant KFIs. He says: “We are fortunate that our business is not reliant on mortgages. It makes up about one third of our business. I imagine that some of the smaller brokers, the one-man-bands, will suffer incredibly and could in fact go out of business. Or they may seek to change their status.”

Trigold manager Jon Shaw says the difficulty for the sourcing systems has been that lenders were not able to give key data to sourcing systems, which resulted in sourcing systems and lenders to work on a parallel basis, rather than together. The collation of data has therefore been a lot slower than hoped.

Mortgages4You principal Graham Farworth says: “Business levels have not reached a critical stage and I’m confident it will pick up after Christmas. But I would estimate we have placed 50 per cent less business than the same time last year. The business will come back to us, when we can confidently tell our clients we can get all the information, KFIs, etc, that we need from the lenders.”

Hill Martin mortgage executive Steve Smith says if there is going to be a downturn in November, it may occur in specific areas of the market, and more than likely this will be in the re-mortgaging sector. He says: “We are likely to see some interesting products in early next year. If a customer is looking for a good long-term fixed rate mortgage, it would be worth their while waiting until next year when lenders will be more competitive. If they are not disadvantaged to wait a while, it would be sensible to wait to remortgage.”

Boulger agrees with Smith. With the fall in swap rates – the rates at which lenders buy long term money – a number of lenders will, he predicts, reassess their fixed rates in the early part of 2005. He says: “Almost certainly, base rates have peaked and we are more likely to see a base rate cut in early next year. Once this message starts to get across and lenders sort out their technical issues, the market will pick up again.”

He believes lenders will be seeking to regain their portion of the mortgage market come the New Year and re-establish their pipeline business.

Next year will be a massive opportunity for lenders to reassert themselves in the market and intermediaries will be hoping they will bring out interesting and competitive products and hopefully reignite flagging sales.

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