Given that we’re only two months into 2019, I wouldn’t normally want to focus on some of the potential negatives for the rest of the year, however given the political uncertainty we’re all living through at the moment, it’s important to be a realist about such issues.
Before I look at some downsides that might be played out over the course of the next year, it’s important to offset this somewhat with some anecdotal evidence around how advisers have started the year. Yes, the purchase market remains challenging but having talked to some of our registered users, many appear to have got 2019 off to a strong start, and it’s in areas like remortgaging, product transfers, later life lending, even first-time buying where significant business transactions are being written.
The other point to raise here is one of competition. I read recently that there are now over 100 lenders active in the market – some would say that’s too many – and this means there is strong appetite to lend and, rather importantly, good competition for business. With rates as they are, product pricing is low by any standard as lenders seek to secure the business levels they need, and that is clearly good for clients although we have a question mark over how long the lending community can sustain such pricing.
There is much talk about ‘margin suppression’ at present, and clearly some lenders have felt that particular pinch already. When the Big Six take the lion’s share of the mortgage market, you effectively have the vast majority of lenders seeking to secure a small sliver of overall lending. One suspects that something will have to give at some point – will we see lenders feeling the need to go further up the risk curve? Or can they continue to survive on very slim margins? My feeling is that the number of current lenders is unsustainable and more are likely to follow the likes of Secure Trust Bank, which has already ceased new lending.
In a way, I’ve already strayed into the potential negatives that confront us all. Brexit of course looms large and just recently the Governor of the Bank of England, Mark Carney, said that it was “the fog of Brexit” which was responsible for “short-term volatility” and meant it was difficult to make any predictions.
Interestingly, the Bank signalled out the housing market as having felt the impact more than most sectors – pointing to low house price inflation, and calling mortgage demand ‘soft’, and suggesting that a lack of spending in the housing sector could be “a short-term drag on growth”.
And what of interest rates? Somewhat unhelpfully Carney suggested they could go up or down, depending on Brexit, which is an obvious statement to make and doesn’t really tell us a great deal. AMI’s recent economic report said it thought rates would rise this year, possibly finishing 2019 at the 1% level, which when you consider the historical picture, is still incredibly low. However, that might all change if the Bank feels it needs to act – one way or another – if we do not get a Brexit deal.
I sense that all this uncertainty is seeping through into advisers’ confidence – a recent report from Paragon seemed to suggest advisers expect no growth in business levels at least in the first quarter, and I would imagine most firms would be happy to maintain the levels they had achieved in 2018. That said, as mentioned previously, other firms appear to have kicked off this year in strong fashion.
Drill down a little into the reasons why firms I talk to, are doing well, and it becomes obvious that these are operations which offer a plethora of products and services to their clients. At times like these we need to learn the lessons of the past, and ensure that no client is simply leaving your office with a mortgage they’re very happy with, and then securing their GI or protection or (dare I say it) conveyancing from other sources. There really is no need for this to be happening when simply squaring this diversification circle can add so much to a business and its bottom line.
Indeed, this is one way to help overcome some of the uncertainty – not just for your clients who can feel confident they have all the products and services they need, but also for your firm which is banking upfront income and – in the cases of insurance and protection, for example – trail commission which will keep paying over a stretch of time, providing a foundation to build upon.
It’s an old message, but given we are currently all completely clueless about what the political situation will be in the months to come, providing financial certainty is a relatively easy sell to all clients. Make sure yours is the business that is delivering on this.
Harpal Singh is managing director of Broker Conveyancing