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Thinking Cleary: Funders are getting their appetite back

I am feeling more bullish about the UK mortgage market than I have felt for five years and this is largely being driven by the appetite of funders who appear to be regaining their interest.

We are certainly being told to up our volumes in 2013 across all products and as a result of accessing funding at an improved cost we have been able to launch into the prime market as well as improving our near prime buy-to-let and bridging products.

This is good news for brokers as the more competition we have the better the market will function and of course the more lending made available to borrowers will improve the prospects of the overall Economy.

The Bank of England’s latest credit conditions survey last week also made for positive reading as it stated that the availability of mortgage funding is the best it has been since 2007.

Dare I say it, but could it be that the worst is finally behind us? Below I have made some comments about the product areas that I see as being key over the next 12 months.

Prime

While speaking to our key distributors in the last few weeks it is obviously apparent that all the main lenders are chasing their targets for 2012 and also trying to build their pipelines for 2013. As a result the last couple of weeks have been dominated by pricing reductions.

When we launched our prime products last Monday within three hours no less than five lenders had also issued attractive new products. That’s great news for borrowers and brokers but not so good for us and I guess we will have to re-price pretty quickly to grab brokers’ attention.

The FSA’s recent product data report made for interesting reading especially regarding the declining share that intermediaries have of the mortgage market.

Many recent announcements from high street banks and supermarkets have been about direct only products which on the face of it may look like a bad thing for brokers but it could be a positive in disguise.

Direct only lenders are not just a competitor to brokers, they are also a competitor to lenders who distribute via brokers so you may see even keener products coming to the broker market as a result.

Near Prime

This tends to follow the prime market in terms of pricing and it is likely that more lender competition will improve the product offering to brokers and borrowers.

I expect to re-price our near prime products downwards sometime this week so even those customers with a less than perfect credit history have options.

This is something that we should all be shouting from the rooftops as many borrowers believe they now have no options if they’ve had a financial blip in the past.

There is a lot more funding out there than is being used at present so this is potentially a growth market for lenders as well as brokers.

BTL and Near Prime BTL

This market is nearly as competitive as the super-prime market with many lenders falling over themselves to increase volumes and as a result margins have continued to drop over the last few months.

Margins can only drop so far and I don’t see much more room for price reductions so expect to see some loosening of criteria over the coming months.

Our product range will be aggressively re-priced in the next week to make it more competitive and we are also looking to make some broker friendly changes to criteria in the short term as well. I will keep you posted as always.

Bridging

West One’s Bridging Index is showing that many brokers are optimistic about this part of the market and I can add that our experience is confirming that this is a growth market. Our bridging volumes continue to climb month on month and this really is a lucrative income opportunity for brokers to focus on.

Our best proc fees are paid on bridging loans because we recognize that there is additional work for brokers and also because the margins allow us to pay brokers a fair fee for their efforts. In addition to the proc fee for the bridging loan the broker should expect to get paid another proc fee within six to eight months when they exit the loan onto a more favorable long term loan.

Many of these loans are buy-to-lets that do not fit standard criteria but we are seeing an increase in regulated bridging where borrowers are using their main residence to raise funds for various purposes. The lack of bank funding for borrowers is most acute in this space but fortunately there are many bridging lenders happy to step into this void.

One gripe that I have is that the Funding for Lender scheme excludes non-bank lenders such as Precise Mortgages.

I have no doubt we could have a much bigger impact in terms of lending than some of the 13 financial services firms that have so far accessed it. That being said this does not dampen my confidence or excitement about 2013 mortgage lending.

Libor and swap rates continue their downward trend at quite a pace and it looks like Libor has now got back within its long term average of about 14 basis points above Bank base rate.

This is allowing lenders to bring out some of the most competitive products we have seen since the credit crunch and it is highly likely that 2013 will see a continuation of this trend. Let’s hope that borrower confidence starts to return and they make use of these fantastic products.

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