The beginning of every new year has to start with a review of the previous 12 months, and in that respect we can perhaps look back on 2019 as a period where the mortgage market didn’t just retain its stability and strong foundations, but built a little on what had happened previously.
No one is suggesting that the year provided stratospheric levels of activity, and I suspect the lending figures – when they’re released – will show an improvement on 2018 but not a major one. However, given the level of political chicanery and shenanigans, and the lack of any sort of Budget in the second half of the year which might ordinarily have provided a boost, we perhaps can’t be too displeased.
But what comes next? According to UK Finance its estimation is that gross mortgage lending will fall back in 2020 which will hardly be music to anyone’s ears. Add in the anticipation that execution-only activity may well increase, a renewed focus from lenders on securing direct-only business, and advisers may well need to work harder in order to generate the same level of income.
That’s not the start to the decade any intermediary stakeholder would want, but it certainly doesn’t tell the whole story, and neither does it detract from a fundamental of today’s mortgage market. That is the demand for advice, the sheer number of products on offer, the competitive lending environment, the move into new product areas and borrower demographics, and – still at the heart of much lending – is the reliance on the intermediary sector to bring in the vast bulk of business.
Will it stop lenders from using improved technology, systems and processes in order to sign-up existing borrowers without recourse to advice? No. But it also means that, regardless of what the FCA might seem to think, there are still large numbers of consumers who don’t just actively need advice, but are in real danger of making some fundamental errors in their choice of mortgage if they don’t get it.
Errors which could cause significant financial damage, particularly if you’re at the extremes of homeownership, by which I mean first-time buyers and those requiring loans into retirement. Two sectors which should surely be on the radar of every single advisory firm in the country.
Our business tends to focus on first-timers, or at least those requiring higher LTV products, and the latest Bank of England stats in this regard are welcome. In Q3 last year 5.9% of all mortgages granted were at an LTV above 90%, compared to 4.23% in the same quarter in 2018. It’s a strong move up but we certainly believe there is more that could be done, and there doesn’t seem to be any doubt that we continue to have a Government which is likely to focus time, resources and effort into helping first-timers on to the ladder.
However, political support must be matched by lender appetite and with that comes regulatory action. We currently have a situation where lenders’ ability to provide the volume of high LTV lending the market needs is restricted and any further action which impacts on this, should be resisted in the most forceful terms. We are a long way away from the Credit Crunch – and therefore the market should be treated in a different way to how it was back then.
Lender controls are now at a very high standard, particularly when it comes to high LTV lending, and where private mortgage insurance is also used, we can offer a second set of eyes when reviewing the mortgage standards they have in place. This all means that we should be providing the market environment to conduct more high LTV lending, not less.
Plus, of course, there is the under-supply of housing which never seems to go away, despite how various governments have suggested they can tackle it. In very basic terms, there are not enough properties for first-time buyers to buy, they have major difficulty saving up for the necessary deposits to buy these homes – without the Bank of Mum & Dad (BOMAD) – and we have a lending community that (on the whole) is regulated to be extremely risk-averse in terms of its high LTV activity. It’s perhaps no wonder that we’ve seen a significant increase in BOMAD-related product choice but nothing like that for those who simply want to buy with a 5% deposit and get a half-decent rate along the way.
Can we change that in 2020? It’s possible. A more benign environment for lenders – regulatory, politically, economically – might encourage them to up the ante when it comes to high LTV, plus the continued use of private insurance might also help them mitigate the risk they see in this sector.
With greater levels of supply and greater appetite to lend, we might be in a position to help many more first-timers into homes, and there’s no doubting that mortgage advisers and their services will continue to be much in demand from this borrower demographic. Plus, getting these clients early presents not just the opportunity to keep them for one transaction but look after their entire financial product needs for the rest of their lives. That’s definitely a client worth pursuing.
Patrick Bamford is business development director at AmTrust Mortgage & Credit
