I’m assuming Greece hasn’t defaulted and the euro is in one piece by the time this article goes to press. All bets are off for normal behaviour otherwise. Keep checking Jonathan Cornell’s Marketwatch column on wholesale lending rates and interbank rates as the following depends on usual behaviours this month.
We are getting to that strange part of the year when lenders need to get their books looking neat for shareholders and customers at the year-end.
Expect lenders to mention volume, margin, type and possibly term in their annual reports and remember that typically lenders like to tell how things are stable and how they have helped society.
So it’s normally at this time of year when they do interesting things.
Brokers often ask me how this manifests itself in lender behaviour. Well, I’d use one lender as a good example from last year.
Remortgage products with a December 31 end date is a key way of reorienting a books at the year-end
It was clear its overall portfolio LTV had increased too much as a consequence of supporting first-time buyers in shared ownership and shared equity schemes in the second half of the year. A good story for investors – but only in part.
If this skewed the LTV higher than market expectations and meant its market share was too dependent on this lending it might look risky to City analysts and its share price could be marked down.
So to look good to its investors and shareholders in October and November 2010, it launched competitive remortgage rates to bring its portfolio LTV down and rebalance its mix and risk profile.
As another example, a lender might have taken too high a share of buy-to-let and upset some of its own risk measures, which are set so only a specific proportion of a year’s total asset generation could be in this higher risk sector.
As a result it needs to take a higher proportion of prime completions in Q4 to manage the mix and have a good story for shareholders who still believe buy-to-let is risky business and needs curbing.
Remortgage products with a December 31 end date is the big lever and often a key way of reorienting a lender’s book at the end of the year.
As usual I expect this will be used by lenders in the coming six weeks. After that, everything goes into 2012 and then it’s all about shaping and managing an asset pipeline into the new year, but that’s a different story.
All this remortgage and portfolio balancing activity is also the main reason why the Council of Mortgage Lenders’ gross lending figures for the second half of the year invariably outweigh figures for the first half each year.
So with this in mind, who do we expect to be doing things this year? Nationwide is excluded as it has a different year-end date for its financial year, so is under no pressure to do anything outside its normal business and doesn’t need to play to the same rules in this period.
As a complete aside, I like the ’On your side’ tag on Nationwide’s latest advertisements. It’s a promising campaign and far less aggressive than the Little Britain adverts.
My old mate Andy McQueen sure is good at marketing.
We also know HSBC will only play its branch and First Direct channels rather than us poor old brokerages. But other lenders sometimes match its rates. So while we can ignore it for this exercise, always watch the remortgage matches in the best buy tables.
I think we will see Lloyds Banking Group play the game I’ve described. BM Solutions has had a good year and needs Halifax assets after its service hiccup mid-year, which is now sorted but sceptical brokers are still keeping an eye on it. So I expect Ian Wilson, head of sales at Halifax Intermediaries, and his enlarged team of BDMs to get busy in the next six weeks.
The Royal Bank of Scotland will shape its book but generally seems to be in a good place so this year may sit this one out. I don’t talk often enough to Barclays to know its position.
Santander looks like it is playing catch-up with volume at the moment and is pushing to get its asset story right in 2011, so I expect it to fight hard. We are doing a lot of business with it, which is great as I rate its intermediary team.
So there is plenty of opportunity for brokers. Be prepared for fast remortgage offers with specific turnaround times. Have your portfolio sorted and get ready to send offers and specials quickly. Don’t miss out and run campaigns if you need to.
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