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Market watch 14 April 2008

Swaps continued to fall last week but I don’t remember many lenders cutting their fixed rates.

It will be interesting to see what effect the 0.25% cut to the Bank of England base rate will have on SVRs. I suspect some lenders won’t pass on the full cut to borrowers.

I don’t think brokers and lenders are communicating well at the moment. This has been reflected in the heated letters and comments published in Mortgage Strategy over the past couple of weeks. Brokers are suspicious of what’s going on and suspect lenders of profiteering and cutting them out of the loop.

Last week Mike Ellis, finance director of HBOS, explained that the lender’s net interest margin – a key measure of profitability – will see a modest reduction in 2008.

Last year was the most cut-throat 12 months in the mortgage industry’s history until Northern Rock began to unravel.

So if the largest lender’s net margin is going to worsen this year, things will not be rosy for its smaller competitors. Finance directors don’t lie about matters that are going to affect their firms’ share prices so I believe Ellis.

With three-month Libor now slightly below 6%, if we price in the base rate cut it’s clear that lenders are having to pay through the nose for funds. Many are paying more than 6%. Lenders that have plenty of funding sorted are simply following the crowd to avoid being overwhelmed by consumer demand.

I’m not sure our friendly neighbourhood intermediary lenders are trying to drive brokers out of business and replace us with branches or call centres. I don’t see how they can source the business volumes that brokers can supply with ease.

For a long time brokers have been used to getting better products. Seeing branch deals that outstrip the ranges we can access is tough but it’s something we must get used to.

I don’t think lenders are trying to get rid of us. They simply want to make the most of the expensive branch networks they have.

Intelligent Finance changed its business model earlier this year and is now broker-only. And its naive to think that Halifax should be turning away buy-to-let business in the prevailing market conditions. It has a steady stream of consumers walking into its branches and asking about products simply by offering a direct buy-to-let product or two. It is not attempting to eliminate us – it is trying to make the most of its opportunities.

The wise head of one brokerage told me that if brokers are worried about losing portfolio landlords to direct buy-to-let deals, they are in the wrong job.

For a long time brokers have concentrated on the cheaper deals they can provide while neglecting others aspects of their business, such as advice and service.

Yes, some lenders may have good direct products but can clients prove their income?

Will the rental income be sufficient and what sort of products do clients want? These are the sorts of issues brokers can help with.

But I am dreading proc fee cuts. Once one lender starts the ball rolling the rest are likely to follow. Falling proc fees and loan sizes would be a double whammy for brokers who have already seen business levels plummet.

Finally, I would like to apologise to Mark Blackwell for my comments in last week’s Marketwatch. I did not mean to cause offence. Blackwell is a respected and experienced professional and would add a great deal of value to any company involved in the mortgage industry.


  • One-year money is down 0.11% at 5.38%
  • Two-year money is down 0.04% at 5.09%
  • Three-year money is down 0.03% at 5.04%
  • Five-year money is down 0.01% at 5.04%


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