Brokers must hold their nerve until funding returns, while maximising the value of every mortgage sale
The mortgage market has stagnated in the past couple of years, largely due to specialist lenders closing their doors.
Without the securitisation model these organisations have been unable to continue to fund mortgages.
Following the demise of these specialists the intermediary market has looked to high street lenders to take up the reins and meet the mortgage requirements of their customers.
In fairness, these organisations to the plate but the government maintaining the Bank of England base rate at 0.5% has bound and gagged them.
The back books of lenders are now at such low rates that they will not be making sufficient money on those deals, if any.
Meanwhile, there’s precious little chance of home owners moving because with rates so low and the economy still in turmoil they have every incentive to stay put.
Of course, this again restricts the flow of funds in the sector and paralyses the remortgage market, which accounted for some 45% of total lending just a few years ago.
And if borrowers are looking to remortgage because they want additional cash to improve their properties the chances are they will need too high an LTV relative to their falling property value, so they could find themselves stuck in crumbling homes.
If borrowers have no money coming in, whether their mortgage rate is 2% or 4% is pretty much irrelevant
And if all that wasn’t bad enough, the lenders that use their savings offerings to fund mortgages are being forced to offer rates high enough to attract savers but they are having to use the margin gained on their mortgages to fund these.
My point is that a sustained period of low interest rates is one of the reasons that we are in a mess.
So when I read media reports that Prime Minister Gordon Brown is claiming he will force lenders to lend I have to ask – how? It’s time for a serious rethink of his strategy.
Lowering interest rates may increase consumer spending but a lot of industries are linked to the housing market, and home ownership accounts for around 70% of the housing tenure in this country.
If mortgage funding continues to fall the way it has there will be an awful lot of job losses soon.
After all, if borrowers have no money coming in, whether their mortgage rate is 2% or 4% is pretty much irrelevant.
House prices increased by 0.7% last month, all but wiping out the surprise 0.8% decline recorded in February, according to latest figures from Nationwide Building Society.
But many commentators believe the market is overvalued. While I agree that this may be case the key constraint is still the lack of funding at higher LTVs to allow individuals to get on the housing ladder or move home.
Of course, we all understand the reasons why there is a mortgage funding shortage but until this problem is rectified all we can do is hold our nerve and work closely with lenders that are still committed to the intermediary sector, maximise the value of every sale and keep a careful eye on our costs.
Fortunately, there are a number of lenders about to enter the market. This is a positive indicator and a welcome sign of hope for brokers as well as other lenders in the market.