In any ‘normal’ year, the end of the first quarter might well provide us with plenty of clues and data on how the next nine months might pan out. However, this of course is no ‘normal’ year, and while there appear to be a number of trends over the last three months, with the political situation as it is, can we confidently say that these will be maintained throughout the rest of 2019? I sincerely doubt it.
What appears to be plain to see for all mortgage market stakeholders is that many would-be purchasers/sellers/borrowers are playing a waiting game until they have greater certainty around Brexit. At the time of writing – and I’m very conscious that things change quickly – the threat of a ‘no deal’ appears to have been ratcheted up whilst we appear just as likely to have a minimum of a three-month extension to the UK leaving.
There appears to be little understanding of which one we might actually get but perhaps this week will provide some certainty in that regard. To be honest, I’m not holding my breath.
Returning to mortgage matters, it’s completely understandable that many people want to wait things out, and I suspect that if we get that extension to the end of June, then this will slide on further into the rest of the year. As someone recently pointed out to me, in ‘ordinary’ times, the market would be going “gangbusters” fuelled by low unemployment, strong demand, highly competitive rates, and the like, but it still appears to be strongly underpinned by remortgage activity with only a very slight improvement in purchasing.
It is however clear that the ultra-competitive nature of the mortgage market, particularly over the last three months, is taking its toll. We’ll all be aware of those lenders who have been forced to closed to new business since the start of the year, unable to compete or secure the margin necessary to keep on lending. While I suspect that for one or two, this is a short-term blip – Fleet Mortgages, for example, are rumoured to be making a return to lending soon – others have stated this is a situation that will last for the foreseeable future.
It’s clearly unfortunate for those lenders concerned and their staff but one must also identify that this is a market that tends to show no mercy. When you have the top six taking the huge bulk of residential, mainstream business, then there is only so much lending to go round. Let’s not forget that there are over 100 lenders currently active, essentially fighting over 10-15% of the market.
One of the most widely-used phrases over the last three months has been ‘margin compression’ and if the top 10 lenders are struggling with this, then you can guarantee those smaller lenders are going to be having difficulty. It’s why we’ve seen many more attempting to diversify away from ‘vanilla loans’ because they simply cannot compete with the high-street behemoths. Instead, the societies, the challenger banks and the specialists are effectively seeking out new niches, further sectors away from the ‘mainstream’, and changing their criteria/pricing accordingly in order to secure the business they need.
We’ve already seen ‘mainstream’ operators now accepting clients with CCJs where they once did not, and I anticipate that others will move up the risk curve into adverse areas, perhaps complemented by loans for the self-employed/contractors/those on zero hour contracts, plus of course, higher LTV options not just for first-time buyers with parental support, but those who don’t have this luxury but can still meet flexible affordability criteria.
The ‘tick box’ mentality of the larger lenders, when it comes to these sorts of areas, is not likely to work, so it’s not surprising that lenders will be reviewing product sectors such as later life lending, equity release, specialist buy-to-let, and the like.
For advisers this ongoing competition, and lenders willing to look at clients they might not have previously been considered, is all positive. The question of course is can we get any market leverage in purchase activity – even if intermediaries are ‘filling their boots’ with remortgages and product transfers, at some point new blood will be required, especially if the trend for taking longer-term mortgages continues, and their two/three-year churn activity begins to take a hit.
All in all, even three months in, this is not a year that can be easily defined as one thing or another – and the longer our political situation is one of full-on uncertainty, the less likely we’ll get that ‘normal year’ many of us might crave.
Pad Bamford is business development director at AmTrust Mortgage & Credit