The market is as flat as a late Shrove Tuesday, yet the Council of Mortgage Lenders’ latest lending forecast is around £140bn some £4bn more than 2010. Everyone I speak to appears to have found ways to survive and there are some strong business models developing to ensure business continues in the new normal.
Most brokers are now charging fees, ensuring revenue per transaction is maximised through protection and general insurance sales, or are extending their regulatory permissions to include life, funds under management and wealth products.
So although there has been a market reduction to around 9,000 brokers, those remaining are surviving and, in some instances, thriving. This looks set to continue and I hope we don’t see many more exits.
Product availability continues to slowly improve. Nationwide’s 95% LTV product, which includes a savings account, is in branches and talks between the CML and developers continue.
Buy-to-let availability in multiple occupancy, company and partnership funding is easing. So what is holding back the market now?
There are two issues here, the first of which is customer deposits. The chart below shows income multiples have declined since 2007. So from this we can extrapolate that affordability is not the issue and loan size is also down, linked to LTV.
So the key now is the deposit. Look at the deposit as percentage of income and the actual amount.
Who has money for a £30,000 deposit plus costs such as Stamp Duty and legals? This is at the heart of the problem, which is exacerbated by the absence of 95% LTV deals.
The population has had a long love affair with property and most want to own their home not rent it
Until high LTVs are consistently available we will continue to see pent-up demand and a subdued market. Not everyone can go to the bank of mum and dad, but you can see why parental support is so important.
Key workers such as teachers, police officers and nurses need more assistance than ever. Some commentators have said there is no need for first-time buyers but I disagree no first-time buyers for a decade and there’ll be no market left.
Remember that in all recessions since World War II 95% LTV has remained available and the first-time buyer and home mover market continued in some form. It is lenders’ capital issues that have forced high LTVs to disappear.
Under BaseI II, a 90%-plus LTV loan costs eight times the capital needed for a 60% LTV loan. Hence we have a lot of competition in the remortgage marketplace and a fight over who wants to do what at 90%-plus LTV.
The other core issue is still lender liquidity. This was confirmed at a recent Santander event by its head of risk Bill Gray. What will take time to work out are the Special Liquidity Scheme and the refinancing away from Treasury support. The news recently has been encouraging with many banks and building societies appearing to be ahead of schedule to refinance their funding.
This is possibly the most important news the mortgage industry has had for two years because if we have Lloyds Banking Group, Nationwide, Barclays and the Royal Bank of Scotland restored to full lending health, there will be movement in the market again.
Add Tesco, HSBC and all the others that might lend more next year Aldermore, Precise, Kensington, and Yorkshire and Coventry building societies among others and we can have a more confident outlook for 2012 post-April.
Indeed, one industry analyst estimated that Lloyds group could have £20bn extra to lend each year after that. Obviously some will go to mortgages, although business lending could get the lions’ share to match government priorities, but in 12 months they could be in a better market position.
It is this combination deposit and lender reticence that will lead to a fourth straight year of under 600,000 housing transactions, half of the 1.2 million long-term norm.
We’ll probably see more national press stories about letting and renting taking over from house purchases. While there is growth in the private rented sector I don’t buy this and I say this as someone who’s renting.
The population has had a long love affair with property and most want to own their home, not rent it.
The rental sector has an important position in the market but I believe that once the Special Liquidity Scheme has ended, when we have increased lender liquidity and high LTV lending comes back, we’ll be reminded of the desire to own.