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Could be better

We’ve had new lenders and products to raise our spirits this year, alongside big news like the MMR and the decision to scrap the FSA. It’s been busy, but substantial improvement in the mortgage market remains elusive

So how was it for you? For the mortgage industry, 2010 has had more twists and turns than a soap opera and more villains than a Christmas pantomime. It’s seen big players bid farewell to the market and new entrants appear, bringing some much-needed hope to the industry. Age-old debates like dual pricing have raged on while new issues have been brought to light like Mortgage Strategy’s Define Advice campaign which aims to identify what advice should entail.

In short it’s been another taxing, testing and downright tough year. But unlike the couple of years preceding it, for some sectors 2010 has also offered some rays of light that should boost morale.

The year began with good news for smaller networks as Which Network’s league table showed appointed representatives were shunning larger players in favour of smaller ones, following the high profile collapse of several major networks. The previous year had of course seen the failure of networks including The Mortgage Times Group, Network Data and Premier Network Group.

There was major rebranding at Abbey as all its UK branches took up the bank’s parent’s name of Santander. All Abbey and Bradford & Bingley branches became Santander branches, with Alliance & Leicester due to follow later in the year. But brokers who were not fans of the old adage ’a change is as good as a rest’ were reassured that the Abbey for Intermediaries brand would be retained.

And there was more change at the Spanish giant with Clive Kornitzer leaving his role as chief operating officer at Abbey for Intermediaries to become director of premium banking for Santander UK.

The sector had something to celebrate in January as figures from the Council of Mortgage Lenders showed gross lending had risen by 14% in December, which was attributed to an increase in the Stamp Duty threshold. From January 1 the Stamp Duty holiday for properties up to £175,000 ended, reverting to £125,000.

There was a hint of hope early in the year with the issuance of a £2.5bn residential mortgage-backed securitisation by Lloyds Banking Group. The deal was backed by prime Bank of Scotland mortgages under the Permanent programme and Lloyds group claimed it was partially driven by strong demand from US investors.

And while some were hoping for the rebirth of the securitisation markets others were trying to stop another area of the industry from dying – fast-track mortgages.

Sesame Bankhall Group, Santander and the Association of Mortgage Intermediaries all put their weight behind a campaign to get the Financial Services Authority to rethink its proposal to effectively ban fast-track mortgages. When the regulator published its Mortgage Market Review discussion paper in October 2009 it proposed a ban on self-cert and imposing income verification on all mortgages.

The paper also outlined proposed changes to the regulatory fees for 2010/11 that those working in the financial services sector will have to pay. It suggested imposing a minimum £1,000 fee for each firm, regardless of size.

And one of the most well-known names in the mortgage industry was rescued as John Charcol was bought out of administration by Towergate Financial. Just a week after the rescue the brokerage revealed it was looking to recruit up to 20 mortgage advisers by the end of the year.

In March it was announced that Ricky Okey, managing director of Abbey for Intermediaries, had decided to leave the company.

Meanwhile, Personal Touch Financial Services appointed Doug Crawford as its new chief executive officer. Previously CEO at Absolute Invoice Finance, part of Aldermore Bank, Crawford replaced John Ruddick who had moved across to the chief operating officer role some six months earlier.

The market was buoyed by Aldermore’s announcement in March that it was gearing up to launch a range of mortgages exclusively for the broker market within the next three months.

And the secured loans sector started to show signs of a recovery, with the resurrection of Link Loans. In October 2009 the company’s sister firm – bridging lender Link Lending – was wound up but Link Loans continued to operate on a reduced scale.

The lender secured fresh equity funding from the Royal Bank of Scotland Special Opportunities Fund, managed by RBS Equity Finance.

Mortgage Strategy in conjunction with Platform launched Define Advice, a campaign to educate the public on the advantages of using brokers for mortgage advice.
And in what would be its last Budget in power, Labour did the only thing guaranteed to win public appreciation and avoid damning criticism from the Tories – doubling the threshold that made properties eligible for Stamp Duty.

As April began Kensington received praise from brokers for its decision to consider applicants with County Court Judgments although it denied this was a move towards reopening the sub-prime market.

Lenders promised the Bank of England that they would launch higher LTV products in the next three months. The Bank revealed that a net balance of lenders had reported a rise in their maximum LTV ratios for the second consecutive quarter and that they expected to see a further increase in Q2.

There was scandal too in April as Mortgage Strategy revealed the misreporting of arrears at Northern Rock exposed by the FSA was part of a widespread practice among lenders to disguise arrears figures.

An industry insider told Mortgage Strategy that before the credit crunch it was common practice for lenders to disguise their true arrears figures by treating them as new business.

Tesco Bank confirmed plans to launch a range of mortgages by the end of 2010 but was dismissed as non-threatening to brokers.

“Obviously Tesco will look to offer mortgages just to its customers,” Robert Winfield, managing director at Chartwell Funding predicted at the time. “It will be business as usual for brokers.”

May began with network news as the beleaguered Home of Choice revealed it was in 11th hour talks with a PLC to rescue it. Just days later its ARs breathed a collective sigh of relief after LSL Property Services confirmed it had bought its assets for £1.5m.

Grenville Turner, group chief executive of Countrywide, caused an uproar in the intermediary sector when he claimed brokers had effectively held lenders hostage when there were fewer direct deals available.

Turner, a former chief executive of the business-to-business division at HBOS, made the announcement at the Building Societies Association’s annual conference in Manchester. With many brokers already feeling abandoned by lenders, this didn’t go down well.

The team at Exact launched a broker-only lender called Precise Mortgages, offering buy-to-let products.

There was good news for the industry when TrigoldCrystal revealed that the number of mortgage products available had leapt by more than 1,000 since the previous May. The number of products increased from 3,606 to 4,989 – over 2,000 more than at the lowest point of the market in August 2009.

The big news in the month of May was the election. It was a tumultuous week in politics and had the country gripped. After days of confusion and uncertainty a Conservative-Liberal Democrat coalition government was formed with David Cameron as Prime Minister.

With summer around the corner, the FSA confirmed to Mortgage Strategy that it would not be introducing more qualifications for brokers. A week earlier the regulator had released its consultation paper on competence and ethics in which it revealed that it was looking at the content of qualifications for non-Retail Distribution Review activities and whether these would benefit from reform.

Former Prime Minister Gordon Brown was in the firing line when former chancellor Lord Nigel Lawson blamed his cutting of Capital Gains Tax in 1997 for the subsequent boom in buy-to-let.

Meanwhile, the regulator revealed it had not ruled out a ban on certain loans such as high LTV, sub-prime and interest-only deals.

But the big news in June was chancellor George Osborne’s decision to scrap the FSA by 2012. Speaking at London’s Mansion House, Osborne declared the end of the tripartite system of regulation.

Instead, he said that the Bank would control macro-prudential policy through its newly-created Financial Policy Committee and govern microprudential regulation via a subsidiary.

And in his emergency Budget Osborne announced that Income Support for Mortgage Interest payments – which used to be calculated at 1.58% above the Bank base rate and were capped at 6.08% – would now be calculated at 1.58% above the Bank’s average mortgage rate, currently 3.6%.

Mortgage Strategy’s latest quarterly round-up of AR networks compiled by Which Network in July showed that 72 ARs jumped ship in Q2.

The FSA released its long-awaited paper on responsible lending as part of its MMR and ruled that mortgage affordability must be assessed by lenders on a capital repayment basis, even where the mortgage is interest-only. Not content with laying down the law on regulation in July, the FSA was also busy tackling fraud and handing out fines totalling more than £179,000 in a week. It banned six brokers and fined four for failings relating to mortgage fraud.

Mortgage Strategy took a stand for the industry by launching an online petition to ensure the survival of brokers, reporting the proposals in the paper.

It exclusively revealed that neither the Prime Minister nor the chancellor had had any official contact with housing minister Grant Shapps since he took up his position in May.

The revelation followed the blow the housing sector received in May when it emerged that Shapps would not have a seat in the Cabinet as part of the coalition government, despite his predecessor Yvette Cooper having a place under Labour.

There was bad news in August when it emerged fraud had quad-rupled in the first half of 2010. According to KPMG’s Fraud Barometer, some 21 cases with a value of £96m were reported compared with the same period in 2009, when there were 18 cases worth just £24m. The whole of 2009 only saw fraud worth £77m.

But the mood was lifted with the news that three new mortgage lenders had applied for authorisation from the FSA. Responding to a Freedom of Information request from Mortgage Strategy, the FSA confirmed that it had received three applications for authorisation to undertake the activity of entering into regulated mortgage contracts as a lender since the beginning of the year.

In The Loop Mortgages, Stroud & Swindon’s intermediary brand, was axed. It was set up in 2008 but when Stroud & Swindon was taken over by Coventry Building Society in March 2010, questions were asked about how ITL Mortgages would co-exist with Coventry Intermediaries and Godiva Mortgages.

Countrywide revealed it had a 5% share of the total mortgage market and a 10% share of the intermediary market, Zurich Insurance was fined £2.2m for security failings, and GDP showed a year-on-year rise.

In September AMI revealed that brokers could face lower proc fees for high LTV clients as lenders try to incentivise brokers into finding lower LTV borrowers. AMI director Robert Sinclair claimed proc fees could be higher for lower LTV deals as lenders use brokers to attract borrowers they want.

There was bad news with industry experts claiming the number of brokers had fallen to around 10,000. AMI’s figures showed there were between 30,000 and 32,000 brokers at the peak of the market and 12,000 at the last count.

Stephen Gay was appointed director-general of AMI, although industry pundits questioned his lack of mortgage experience. Gay replaced Chris Cummings as head of AMI, the Association of Independent Financial Advisers and the Association of Finance Brokers.

Paragon Mortgages returned to new lending and launched a range of buy-to-let products targeted at professional landlords. And Paragon managing director John Heron revealed he had heard rumours from the government that it would not be regulating buy-to-let and it did not share the view of the previous Labour government that the sector needed to be regulated.

Meanwhile, Mortgage Strategy took the battle for the future of mortgage brokers directly to the FSA and the Treasury by handing them its Fighting For Our Industry petition containing 1,112 signatures.

Concerns were being raised in October over brokers being kicked off lenders’ panels for minor errors. Mortgage Strategy revealed there had been reports that some lenders who stipulate surnames must be written before forenames on application forms, are rejecting any that have the reverse submitted.

A Freedom of Information request by Mortgage Strategy found the government has not assessed what impact the Mortgage Market Review would have on the economy.

The only correspondence between the government and the FSA regarding the MMR’s impact had been in October 2009 under the Labour administration. At the time housing and planning minister John Healey wrote to FSA chairman Lord Adair Turner to praise its work.

AMI announced it might launch a human rights challenge against the approved persons regime when it is introduced. The application form to perform controlled functions under the regime requires brokers to declare spent convictions such as fines, cautions or warnings. A conviction becomes spent when the sentence has been served and a specified period of time has passed.

The Rehabilitation of Offenders Act means those with spent convictions do not need to declare them when applying for jobs, but the financial services industry is exempt from the act.

Sinclair said AMI had voiced its concerns to the FSA as part of feedback to the proposals.

In November the Council of Mortgage Lenders came under fire from a non-executive board member of the FSA for using what it called ridiculous propaganda in relation to the MMR.

Meanwhile, AMI said the cost of offering direct deals could be driven up by the FSA’s suggestion that all mortgage sellers will have to be trained to CeMAP level 3, including those in branches.

Abbey for Intermediaries announced it was looking at entering the buy-to-let market in 2011 with products aimed at non-professional landlords.

And Shapps sensationally hit out at the MMR, branding it down-in-the-dirt regulation and a step too far. Speaking at the National House-Building Council annual conference, he told delegates that the FSA’s proposals would prevent him from getting a mortgage.

Colin Snowdon quit as chief executive of residential mortgage lending at Aldermore, claiming the new structure of the bank did not make the most of his skills. A week earlier Aldermore had revealed that both its commercial and residential mortgage businesses would report to Mark Stephens, deputy chief executive officer of Aldermore.

As we entered the most festive month of the year it was revealed that the FSA is delaying the approved persons regime by up to two years, blaming the government’s decision to introduce a new regulator.

Brown released his new book explaining the financial crisis and claimed he was misled by RBS. In Beyond The Crash: Overcoming The First Crisis Of Globalisation the former prime minister says that as chancellor he was not told about the extent of the reckless lending.

It’s been one hell of year and one we won’t forget in a hurry. Here’s to a successful 2011 filled with good business, sensible regulation and, with any nluck, a little less drama.


A strong intermediary market will help combat continuing challenges

Alan Mathewson

Managing director
Abbey for Intermediaries

This has been another challenging year for the mortgage market, with gross lending forecast to be below 2009 levels and latest figures suggesting that house prices could end the year a little down on 2009 too. While the number of purchase approvals has remained remarkably steady, running at almost twice the number of the low point reached in November 2008, purchase approvals continue to represent just less than half of the level seen in the years before the financial crisis and first-time buyers remain scarce.

And while remortgage activity has started to pick up, this area of the market remains relatively muted. With the new year heralding an increase in VAT to 20%, significant job losses from the public sector still to be felt and inflation running ahead of pay increases, it is hard to see households’ confidence and willingness to borrow in 2011 changing substantially.

But one area of difference in 2011 is likely to be house prices. After the sharp fall in prices in 2008 and early 2009, the subsequent strength of the rise in prices was a surprise. But rising prices led to more home owners putting their properties on the market from this spring and this rise in supply has played a role in subduing prices. As a result we have seen something of a year of two halves, with prices rising in the first half but then a second half of stagnation or small falls. The signs are that the gradual fall is likely to continue for a while into next year, but another collapse in house prices is not expected.

On a more positive note, we have seen gross domestic product growth, with the economy growing by 2.8% since the trough in the Q3 2009, faster than forecasters were expecting. And while conditions will remain challenging next year, we are expecting GDP growth to continue at around 2%, following 1.8% overall this year.
As well as the impact of the economic conditions on the mortgage market, it’s worth acknowledging that the intermediary sector has faced a number of other challenges. These include consolidation among firms, some lenders continuing to dip in and out of the sector and, last but not least, effective engagement in the Mortgage Market Review consultation period to ensure that the valuable role of the intermediaries is recognised and represented.

With estimated gross lending of around £140bn in 2011, it’s clear that situation will remain challenging for the mortgage market as a whole. Despite the difficult conditions this year, our key objective has remained the same – to support brokers by being a consistent lender in the market, as we have been throughout the financial crisis.

The mortgage market needs a strong intermediary market and as we enter the new year, we look forward to continuing to work with and support brokers in 2011.


New lenders and buy-to-let activity were good news stories during the year


Ray Boulger
Senior technical manager
John Charcol

When we entered 2010 three-month Libor was at an all-time low of 0.60% and five-year swaps were 3.41%. During the year three-month Libor increased to 0.74% but five-year swaps fell nearly 1% to around 2.5%, after touching an all-time low of 1.99%. Although lenders rely less on wholesale markets than they did before the credit crunch, the pricing of fixed rate mortgages followed swap rates down. For example, the cheapest five-year fixed rate mortgage at the beginning of the year was just under 5% but the cheapest is now a little under 4%.

Before the May 6 general election there was concern a hung parliament would spook markets and interest rates would spike up. The Conservative and Liberal Democrat negotiating teams recognised this and quickly concluded that the uncertainty resulting from any arrangement other than a coalition would unsettle the markets.

As a result they set themselves a deadline of the Tuesday after the election to agree and make public the basis of the new government. The timetable was so tight that even as David Cameron was at the palace accepting the Queen’s invitation to form a government the final details of the coalition agreement were still being written.

Activity in the housing market tailed off as did house prices in the second half of 2010 and gross lending will be a further 5% lower in 2010 after the huge falls in 2008 and 2009, leaving gross lending 60% down on 2007. Even this looks good compared with net lending, which fell 90% in the two years to 2009 and hasn’t changed much in 2010.

During 2010 we welcomed a few new lenders to the market and some building societies increased their lending. But societies as a whole will again be in a significant negative net lending situation in 2010 and specialist lenders even more so.

Despite criticism from politicians and others keen to capitalise on the easy populist plaudits available from bank bashing, over the year banks will have contributed several 100% of net lending, with other sectors of the market being in major net negative lending territory.

Residential lending criteria tightened further in 2010, with some lenders implementing certain draft proposals in the Mortgage Market Review even before the consultation period closed, let alone the final rules being agreed.

On the other hand conditions in the buy-to-let market improved, with more lenders active in the market and The Mortgage Works in particular widening the types of lending it offered and increasing its maximum LTV to 80%.

During the year Nationwide increased its challenge to Lloyds Banking Group for dominance in the buy-to-let market and in some months it was probably the market leader.


MMR could be a positive force but we must be included in discussions

Robert Sinclair
Association of Mortgage intermediaries

It has been a year of coming to terms with new paradigms. With £200bn of quantitative easing still invested and inflation sticking at over 3% we have seen the economy get back on track. In spite of this we have seen a growing acceptance that there is insufficient bank funding for small businesses and for mortgage lending. The pressure to recapitalise, increase liquidity and restrict risk runs counter to expansive lending. The move in SVRs and falling fixed rates has made remortgages more attractive.

But the risk to the purchase market being starved of funds is escalating, with both limited gross lending available and the issue of how banks refinance their government and maturing corporate debt.

At this time of change, the Financial Services Authority is losing so many of its key leaders that it risks being left without clear direction. It is already in need of work to tie various strategy, policy, supervision, enforcement and delivery strands together. With so many people in the FSA’s revolving door, the time for the chairman, board and the panels to exercise effective control has never been more urgent.

The trauma of losing more networks through financial difficulties passed with pain for some and relief for many. In dealing with enquiries the arguments about what might be logical, or morally right, was superseded by what was in the contracts. It is these contracts that any administrator or liquidator had to rely on.
The big news of the year was the Mortgage Market Review, with the decision to propose enforcing income validation with the resultant loss of self-cert mortgages and the complication of fast-track. The complexity of the new affordability assessments runs the risk of changing the dynamics of our market as it reduces the ability of individuals to make lifestyle sacrifices to afford the home they want.

The FSA is not being helpful. In giving us proposals in bite-sized chunks we have to respond to part of the picture without seeing the end game. It must have a vision of what the market looks like at the end of this.

I raised mortgage issues with influential MPs on the Treasury Select Committee. The MMR still has no definite dates for implementation and I hope the FSA is in listening mode. I have been criticised for saying positive things about the MMR team. I remain positive in that it has consulted widely. We have to hope that it uses that dialogue to deliver practical solutions.

In November, I led a delegation of European mortgage brokers to the European Commission in Brussels. Arranging consensus between French, Belgian, Dutch and Austrian representatives made dealing with issues with UK lenders seem easier. It is good to know that Europe has large groups of brokers doing the same jobs with common concerns. New European rules on mortgages will be one of the big jobs in 2011.





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