Those advisory firms whose core business is mortgages will be viewing the next 12 months with a certain degree of uncertainty. Many industry experts are expecting gross mortgage lending levels to increase throughout the year with most concentrating on the £150 billion figure as an achievable goal. With the Funding for Lending Scheme (FLS) fully up and running we may well find this to be a conservative estimate, however this is rather dependent on lenders using the money they have drawn down to actually lend.
‘This is a certainty’, you might think given the fact that lenders will be penalised if they do not use the funds however one school of thought is already suggesting that lenders may be quite comfortable with any financial penalty given the cost of the funds are so low, and the benefits to their balance sheet can be sizeable. If this is the case it would be something of a kick in the pants for the Bank of England however, if we are to believe the public protestations of the lenders, then this is not on the agenda and all drawn down funds will be making their way to market. However, one can’t help but think, watch this space.
In terms of the FLS we have little to go on in terms of how it is working in practice. Certainly the number of lenders accessing funds has grown substantially and we should expect a much more rosy picture when the next set of data is released in March. However, going on what we have at present, which effectively showed that approximately a fifth of all funds drawn down in quarter three last year had been lent out, then the scenario detailed above may not be a work of fiction.
Certainly FLS has kick-started a degree of competition in the mortgage marketplace but this is predominantly at 60% with however a degree of noticeable improvement in rates at higher LTV levels. The big question is whether we will see this competition improve at all levels or whether there will continue to be a safety first/risk-free approach adopted? I suspect that the big lenders will be happy with where they are at present however it will be the next ‘division’ (if I can call them that) of lenders who will be the ones forcing the issue at the 80/85/90% and (hopefully) 95% levels.
What has already been noticeable is the ongoing ‘in/out’ nature of competition at present. We appear to be seeing an increase in the ‘Sale now on’ marketing mentality with lenders announcing significant rate cuts and product availability but only for ‘a limited time only’. Just this week Accord has announced its ‘10-day sale’ and I suspect we will see much more of this over the course of the year. Lenders are essentially setting aside tranches of funding that they want taken quickly however they are not prepared to lose control of distribution – and be inundated with applications thus affecting service – and they’re not willing to be ‘Best Buy’ leaders for considerable lengths of time. Thus we have the quick Sale followed by a return to core products and pricing.
Intermediaries, of course, should be benefiting from this activity. It may be a pain in terms of turning around applications in short spaces of time but it’s unlikely that lenders will be thinking their branch/direct routes are the best distribution channels to bring in significant levels of business in double-quick time. Instead, lenders will be looking to intermediaries to deliver on this front.
All in all, it makes for an interesting mortgage market at present and one that requires the skill-set and flexibility of the intermediary profession to work efficiently. We might all prefer a market where competition was rife 24/7 across all LTV levels and products, however, this is not the world we live in. Instead we should be ensuring clients know we are in the best position possible to get the best deal at the drop of a hat – some lenders may not be issuing competitively-priced products for much longer than this anyway.
Richard Adams is managing director of Stonebridge Group
