New entrants can't compete on mortgage pricing
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Would-be lenders are not in a position to offer cheaper mortgage deals than the rates available from established lenders, according to the Council of Mortgage Lenders.
The plans to break up Lloyds Banking Group and Royal Bank of Scotland have ignited hopes that the competition will return to the mortgage market, as new lenders pick up the assets.
Chancellor Alistair Darling told the House of Commons that one of the government’s major aims was to improve competition in the banking sector.
But in the trade body’s latest newsletter the CML says: “There was no mention of mortgage pricing.
“If new entrants price properly for risk, they will not be able to undercut substantially existing lenders that are active in the market.”
The CML points out that any new lender will have to compete for access to funding and questions whether prospective lenders would be to meet consumer demand at realistic prices.
Hector Sants, chief executive of the Financial Services Authority, admitted yesterday that the regulator has deterred several new entrants to the market.
Regulation is proving to be a barrier for entry for would-lenders in light of tight capital and liquidity requirements stipulated by the FSA, as revealed in this week’s Mortgage Strategy.
CML data shows that in the six largest firms advanced almost 80% of gross lending in 2008.
The CML says the trend has continued this year, with new lending now even more concentrated in the hands of the largest lenders.
The CML argues that the assets of Lloyds Group and RBS are likely to be snapped up well-capitalised foreign banks or other retail businesses.
It adds: “Clearly, new entrants over time would increase competition from the small number of active lenders we have today.
“Any such moves would be a step in the right direction.
“But we are unlikely to see a return to the highly competitive mortgage market we saw before the credit crunch.
“While a steady increase in the number of active lenders may occur over a period, it is unlikely to lead to the launch of a new range of innovative products.”
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Readers' comments (4)
Maurice Edgington | 10 Nov 2009 5:32 pm
Let a few lenders accepting some mild adverse in. There is plenty of room for pricing up there and no competition from the big six.
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Ken Wilson | 10 Nov 2009 5:35 pm
Once again the FSA has poked its' nose in where it has no right to do so. I find it absolutely crimminal that Sants 'has deterred several new entrants to the market' There are many thousands of young first time buyers waiting to settle into 'their new home' but we have a no good pratt supposibly in the interest of all, putting up a barrier that prevents the first time buyer from entering the market. Perhaps when the Tories do get in next year they make dis-solving the FSA and its' over-paid executive their first priority, then the next Regulatory body that's appointed will be people with sense as well as knowledge
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Anonymous | 10 Nov 2009 6:14 pm
The interest rate is only one characteristic of a product. It is more important to provide a mortgage facility to some of the 90% of the market that is currently being excluded, than to offer a cheaper rate for the 10% currently being catered for.
Bring in a lender who actually uses an underwriter (do you remember them?...) to make the decision, rather than relying on the computer.
There is a wide range of good qulaity business being ignored because lenders fail to understand the difference between actual risk and perceived risk.
Until lenders bring back underwriters who are capable of assessing risk...after all, that is what underwriters are meant to do.... the mortgage market will remain in the dark ages.
It is time the FSA realized this and took positive action.
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Michael White CEO Emailmortgages | 11 Nov 2009 11:43 am
Surprise, surprise.... the people that understand the 'demands & needs' of the mortgage market recognise at once that there is no requirement to "undercut substantially existing lenders that are active in the market.”
To put this in perspective, as Director of Lending for Kensington Mortgage Company back in 1995 I realised that it was better business to lend 60/70% LTV at a premium rate to a middle aged applicant who had experienced credit problems due to the recession rather then lend 90% to a 21 year old FTB at much reduced margins. I certainly had no desire to undercut existing lenders!
The same problems are arising again except due to the interference of the FSA both types of applicant are being treated abysmally! At the very least, some sort of effort similar to action being taken in the USA for FTBs would be good. But no, and why, well quite simple...The brains of the outfit, Hector Sants et al, can surround themselves with lots of 'yes sir' folk and recognise they are never going to be sacked for generally proposing overly negative and quite incompetent remedies plus adopting a blame culture to boot.
A final thought, lets not forget the huge costs to keep this effective ‘quango’ in operation and then attempt to offset such costs against the benefits it has brought?…..tough one that!
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