Economic tracker - June 2011
Our monthly economic tracker provides data and expert commentary on the health of the housing market
Regulation overload can be such a drag
By the end of July we expect another substantial consultation from the Financial Services Authority on the Mortgage Market Review. This will push the volume of regulatory change and information in the past 12 months through 1,000 pages and well on the way to 2,000. This is only part of the story for most retail lenders.
My rough measure excludes capital, liquidity, source book, complaints handling and the Retail Distribution Review. These changes are accompanied by a more intrusive and intensive regulatory regime.
So it is unsurprising that for many businesses management of the regulatory agenda is a real drag on economic performance and innovation. Activity is diverted at all levels within the business.
Of course in some areas this is exactly what the regulator intends.
This uncertainty of scope and timing represents a lack of control over the future of the business and indicates increased future risk.
A further challenge is the increasing move towards globalised regulation. There is the draft EU CARRP Directive while the Financial Stability Board, the potential global regulator, has published its analysis on mortgage underwriting and origination practices.
Pan-national regulation presents more challenges as harmonisation of rules means unnecessary additional work for national lenders. For example, the European Union’s proposed changes to the Key Facts Illustration and the APR calculation deliver no benefits to UK customers.
There is also the risk the individual needs of a particular market will be lost as in proposed EU regulation of buy-to-let. Simultaneous regulation can result in the same issues being resolved in different ways.
The threat to the fragile housing market of this regulatory burden was highlighted by the Financial Services Consumer Panel. It says affordability rules should be delayed until the housing market has recovered.
In her speech to the Building Societies Association Conference on May 4, Sheila Nicoll, director of conduct policy at the FSA, appeared to indicate that it has been listening to these concerns over regulatory drag.
While we have a draft timetable for the final policy rules, there are no dates for implementation. It is likely these same points will need to be made when the EU further considers its draft directive. It is clear the regulatory juggernaut still has plenty of petrol in its tank.
Lenders committed to broker investment
I see first hand the important role intermediaries play in the mortgage market, both as a vital distribution channel for lenders but also the fulfilment of consumer need. Although there has been a significant contraction in numbers, intermediaries are still responsible for around 60% of all UK mortgage business.
According to the Intermediary Mortgage Lenders Association the proportion of loan sales via intermediaries by volume grew for remortgage and home mover sectors and stayed the same for the first-time buyer sector between Q4 2010 and Q1 2011. By value, the picture is mixed, with a rise for remortgage, a fall for first-time buyers and no movement for home movers.
The figures are positive for intermediaries as they continue to be the dominant distribution channel for mortgage lending. But more can be done to improve their experience.
We invest in improving the experience for brokers. In August 2010 we launched an enhanced online facility through Nationwide for Intermediaries and better back-end processing capabilities, leading to faster processing. In May, 35% of all NFI Online cases were offered within five working days and this is improving. Since the beginning of June we’ve been phasing in a fully integrated online facility for all MTE users.
One of the positive consequences of a contraction in intermediary numbers is that the overall standard has increased since the credit crunch, with many of the weaker intermediaries leaving the industry. This benefits consumers as they receive better advice and service.
This is particularly important to first-time buyers who may feel they benefit more from going to an adviser rather than to a lender. Brokers were responsible for introducing two-thirds of first-time buyer mortgages in 2010, compared to just over half for home movers and remortgages.
Before the credit crunch, many intermediaries were overly dependant on the mortgage market and had not built up legacy income streams. Now many are evolving their business models, offering customers a wider range of advice and creating more sources of income.
So with intermediaries proving themselves resilient during a tough mortgage market, they can be assured lenders are committed to helping them achieve their goals through more efficient service, excellent BDM support and consistently competitive products.